Fed cattle were trading in the range of $86 to $88 for the week ending February 14. The market appears to have strengthened on better than expected demand and tighter market-ready supplies. USDA reported wholesale values at the lowest levels since Sept 9, 2005. Choice product was quoted at $135.76/ cwt and select product at $134.50/ cwt. This is down nearly $10 from two weeks ago. Packing margins have turned negative with the lower wholesale prices. Estimated packing margins are a negative $25 per head, compared to positive $25 at the end of January. The industry is experiencing a slower than expected slaughter pace in the U. S. Prices for higher end cuts are under pressure and setting a negative tone for the overall carcass value. Fed cattle were trading at $82 and $83/cwt in the U. S. Southern Plains, similar to prices in January. On a carcass basis in Nebraska, values were reported in the range of $130 to $132.
The USDA made revisions on their February supply and demand tables due to the recent cattle inventory report. In the 2nd and 3rd quarters of 2009, USDA lowered beef production by 40 million pounds and 115 million pounds in the final quarter. Total beef production for 2009 was lowered by 430 million pounds from the January estimate. We will now see 2009 beef production come in under year ago levels by 20 million pounds. U. S. beef exports are projected to be 1.88 billion pounds which is the same as in 2008. U. S. per capita consumption in 2009 is now projected to be down 1.1 pounds in comparison to 2008. This is supportive for live cattle prices and major change from our January reports. From the supply perspective, the outlook has turned from bearish to supportive. of the largest changes since the fall of 2001. The winter period is when many people take their winter holidays and there has been a major decrease in restaurant and resort demand. National and International companies are having meetings in the hometowns rather than at exotic locations. While this may seem like a minor change of lifestyle, the macro influence is quite negative for beef consumption. Companies are paying more attention to the bottom line on all expenses, including lunch expense reports.
In conclusion, the live cattle prices are expected to trade sideways to slightly higher to the end of March. Supplies of market ready cattle will tighten during this time. However, we may then see feedlot marketings increase into the summer period. Sluggish demand will continue to limit potential upside in the short term.
Canadian feeder cattle prices have been holding value over the past couple weeks. Steady demand from feedlots and slightly lower available numbers has set a positive tone. Values for feeder cattle look somewhat attractive given the current fed cattle market for the summer and fall timeframe; therefore, feedlots are steadily buying replacement cattle.
We have seen cow liquidation in Saskatchewan and these ranchers will be looking for grass cattle later in spring. This could result in somewhat higher demand during this time. Talk in the trade also suggests that more calves went straight into feedlots last fall rather than backgrounding operations and this could result in fewer available cattle in the 700 to 900 pound category at this time. This is also resulting in a firmer tone for cattle that will be on feed 120 days or less. I feel that feeder cattle prices should stay firm between now and into the summer. The feedgrain market is also somewhat bearish at this time so this should also bode well with finishing feedlot demand.
Gerald Klassen analyses cattle and hog markets in Winnipeg and also maintains an interest in the family feedlot in Southern Alberta. For questions or comments, he can be reached at [email protected]or 204 287 8268.
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.