Fed cattle in Southern Alberta were trading in the range of $89 to $91 in mid-October, up nearly $4/cwt from a month earlier. At the same time, Nebraska cattle were trading at $98 on a live basis and $155 on a dressed basis, steady with September prices. Beef production in the fourth quarter will likely come in higher than earlier anticipated due to a larger slaughter pace. Despite the increase in supplies, choice wholesale values remain near $156, which is up nearly $20 from last year.
We are clearly seeing an increase in demand on rising consumer incomes. U.S. beef exports have surged to pre-BSE levels due to stronger southeast Asian consumption. Canadian beef exports are also running quite strong, especially to the U.S. where lower imports from other major exporters have benefited Canadian producers. Feeder cattle prices have been slowly trending higher due to abundant feedgrain supplies in western Canada and stronger fed cattle prices. It appears feedlot demand for replacement cattle has improved throughout the fall period and we are also seeing the effects of year over year smaller calf crops.
We are clearly seeing greater demand for Canadian beef in the domestic and export markets. The Canadian cattle slaughter for the week ending October 9 was 63,000 head bringing the year to date slaughter to 2.524 million head, up 3.7 per cent from last year. From January through August, slaughter cattle exports to the U.S. were 588,000 head, up a whopping 22 per cent or 106,000 head from last year. January through August beef exports to the U.S. are running at 278,000 mt, compared to 248,000 mt for the same timeframe in 2009. The market has been draining off supplies of fed cattle keeping carcass weights under control and supporting the overall market structure.
Cattle on feed numbers in Alberta and Saskatchewan were estimated at 684,000 head as of October 1, down six per cent from last year. September placements were 273,000 head, down three per cent from September of 2009 while fed cattle marketings were down three per cent from year ago levels. Feedlot inventories are at five-year lows and with the positive margin structure in the deferred months, we expect to see stronger buying interest for feeder cattle.
From August to December 2007 and 2008, feeder cattle exports to the U.S. ranged from 200,000 to 300,000. However, the declining calf crops have resulted in limited export movement for 2009 and 2010. Feeder cattle supplies in Western Canada as of July 1, 2010 were down 460,000 head from July 2009 and down 600,000 head from July 2008. Western Canadian feedlot demand is now greater than the domestic calf crop.
Calf prices in Western Canada have been ratcheting higher throughout the fall period and in mid-October, 600 pound steers were bringing back $129/cwt; heavier yearlings weighing 950 pounds were selling for $107/ cwt. We are seeing a significant premium in Western Canada over central U.S. prices as basis levels moved to $0 on 800-to 850-pound steers. Strength in the Canadian dollar is having a limited effect on our local feeder markets because the export volume is quite low. The Canadian feeder market is rationing demand due to the smaller Canadian calf crops over the past two years.
The strength in the cattle and beef complex is due to rising U.S. consumer incomes as wholesale beef prices were quoted at $156/ cwt approximately $20/cwt above 2009. Retail ground beef prices remain near historical highs and we are starting to see strength in the higher-valued cuts as well. Top-end sirloins have a ways to go before they reach 2008 prices but at least these products are starting to edge higher. Away from home food expenditures are running eight per cent above last year, which is a very positive signal moving forward. The fourth quarter tends to be a seasonally strong period for retail spending and this also spills over into restaurant beef consumption. U.S. weekly unemployment claims are also expected to decline over the next six months reflecting marginal strength in the job market. The Dow Jones Industrial average reached six month highs in October which has improved consumer confidence. The main story in the U.S. housing sector is that the situation is not getting worse with improvements noted in certain regional markets.
The fed cattle market is expected to stay firm into December and then start trending higher into the March/April timeframe. Lower U.S. domestic beef production along with rising consumer incomes should result in the stronger Canadian fed cattle prices. Feeder prices should also stay firm as long as barley remains under $180 per mt in Southern Alberta. Looking at the past 30 year history, the most profitable periods for cattle producers is when the U.S. economy comes out of recession and moves into full fledged expansion. We are now entering into that phase of the economic cycle.
GeraldKlassenanalysescattleandhog marketsinWinnipegandalsomaintainsan interestinthefamilyfeedlotinSouthern Alberta.Forquestionsorcomments,hecan bereachedat [email protected] or2042878268.
The material contained herein is for information purposes only and is not to be construed as an offer for the sale or purchase of securities, options and/or Futures or Futures Options contracts. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. The risk of loss in futures trading can be substantial. The article is an opinion only and may not be accurate about market direction in the future.