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Feeder cattle prices surge higher

Feeder cattle prices surged higher in early January as the market contends with tighter supplies, stronger fed cattle prices and weaker feed grain values.

Central Alberta auction markets reported Simmental-cross steers weighing 429 pounds sold for $191/cwt; Limo-cross steers averaging 550 pounds moved at $160/cwt and black Angus-based steers with medium flesh averaging 825 pounds traded at $146/cwt. While Western Canadian values were up $2 to $3/cwt, U.S. feeder prices jumped $10 to $15/cwt in the Southern Plains region. Heifers for beef cow replacement were notably strong. For example, Angus heifers in Nebraska averaging 618 pounds sold for $194/cwt and steers weighing 500 to 550 pounds were commonly over $200/cwt.

There are four main reasons for the higher feeder cattle prices:

  •  The North American feeder market is functioning to encourage expansion. Producers have experienced 1-1/2 years of historical high prices and widespread heifer retention is occurring in all major cattle regions of the U.S.
  • It appears producers in Texas and Kansas who liquidated herds earlier in summer 2011 due to the drought, are now being more aggressive to get cattle numbers back to normal. Pasture and winter wheat conditions started to improve in October and November. A larger portion of Texas experienced 150 per cent of normal precipitation in December.
  •  The 2011 cow slaughter came in higher than expected and it appears the calf crop will be smaller than previous indications. Keep in mind U.S. feedlot placements from July through November 2011 were above 2010, especially in the lighter weight categories. A smaller calf crop combined with an abnormal placement pattern have tightened available supplies.
  •  Feed grain prices are coming under pressure, lowering the cost per pound gain.
  •  And finally, fed cattle prices continue to ratchet higher. Alberta packers were buying fed cattle in the range of $113/cwt to $117/cwt in the first half of January. The fed market in Texas and Kansas traded at $123/cwt while Nebraska cattle reached a high of $124.50/cwt. The cash trade appears to be trading at a premium to the futures, which is common in bullish cattle markets. U.S. feedlot operators buying 600 pound feeder cattle are expecting October fed cattle prices to reach $132/cwt to $135/cwt.

Increased exports

Canadian feeder cattle exports to the U.S. are expected to increase given the current price structure. During October and November 2011, exports were about 12,000 head per month. However, it would not surprise me to see western Canadian feeder cattle exports reach over 60,000 head per month during the first quarter of 2012 given the current price spread between Manitoba and Nebraska.

Western Canada currently has a feeding competitive advantage with lower barley prices relative to corn. Canada also has a tighter supply situation so our values should actually trade at a premium to the U.S. market. Therefore, March feeder cattle prices in southern Alberta could be $10/cwt to $15/cwt above current levels.

The fed cattle outlook remains positive but is somewhat tempered compared to the feeder complex. Cattle-on-feed supplies in the U.S. are running two per cent above last year while western Canadian on-feed numbers are up two per cent. It is inevitable the cow slaughter will decline, which should result in higher average carcass weights. The U.S. weekly slaughter is running three per cent higher than last year (excluding the holiday period). The USDA is forecasting a three per cent decline in beef production in the first quarter but this may be adjusted upward.

Post-Christmas slump

Beef demand has been rather sluggish in January due to lower restaurant spending and slower retail beef movement. After a surge in consumption before Christmas, it appears consumers have tempered their eating patterns. This will likely continue until mid February and then food spending starts to increase from a seasonal perspective. I guess it takes about two months for consumers to pay off the Christmas bills.

The U.S. economy appears to be in full fledged expansionary mode which should result in higher consumer incomes in the first half of 2012. This is positive for beef consumption because consumer spending and beef demand are highly correlated.

U.S. unemployment dipped to three-year lows in December. Consumer confidence also jumped reflecting that people feel better about their financial position now and for the future. Retail prices for ground beef have made new historical highs but demand for higher end cuts has been lagging. Stronger consumer confidence suggests that holiday travel and restaurant spending will increase causing greater demand for high end beef products. †

About the author

Field Editor

Lee Hart

Lee Hart is editor of Cattleman’s Corner based in Calgary.

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