As of mid-November, Alberta packers were buying fed cattle in the range of $260-$263 delivered on a dressed basis. Prices FOB the feedlot in southern Alberta were quoted at $154 on a live basis. Prices are marginally lower than the October average because market-ready supplies in Alberta and Saskatchewan are sharply higher than a year ago.
Prices in Texas and Kansas were quoted at US$132 on a live basis FOB the feedlot. Alberta packer bids are C$8-$10 below U.S. values as market-ready fed cattle supplies appear to be tightening. Alberta feedlot pen closeout values are currently at $170-$175 on a live basis although it depends on when the feedlot booked their feed grain requirements.
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Regardless, we’re seeing significant equity erosion, which has set a negative tone for the feeder cattle market. In central Alberta, larger-frame, medium-flesh, tan steers weighing 850 pounds were trading around $182, down about $17 from the October highs. Calves had dropped about $20 over the previous month and 600-pound steers in central Alberta were readily trading around $195. Feed barley continues to ratchet higher due to the smaller crop and year-over-year increase in export and domestic feed demand.
The drought in Western Canada caused feeder cattle to be placed in feedlots sooner than normal. However, the U.S. placement schedule through the summer was similar to traditional placement patterns. Market-ready fed cattle supplies in Alberta and Saskatchewan during November were estimated to be up 70,000-80,000 head above year-ago levels. The Alberta fed cattle market was functioning to encourage demand by trading at a discount to fed cattle prices in Nebraska and Texas. Fed cattle prices in the U.S. Southern Plains are at fresh 52-week highs. Market-ready supplies in the U.S. are down nearly 80,000 head. We can say the U.S. market is functioning to attract Canadian fed cattle.
Good news on the demand side
A one per cent increase in consumer spending equates to a one per cent increase in beef demand. U.S. retail sales during November are expected to be up 15 per cent over last year. Recently, U.S. restaurant traffic has edged over 2019 levels for a continuous period for the first time since the COVID recession. There is a fair amount of good news from the demand side of the equation. During the second week of November, wholesale choice beef was trading at US$285/cwt while select product was quoted at US$269/cwt. U.S. wholesale beef prices are up nearly US$65/cwt from the November averages of 2019 and 2020.
Fed cattle prices during the first half of 2022 are expected to trend higher in both Canada and the U.S. During March 2022, the backlog of market-ready supplies in Alberta and Saskatchewan will be cleaned up and the domestic packers will have to pay a premium over Nebraska prices to secure ownership. The Alberta market is expected to jump rather sharply in the late winter and early spring.
The USDA quarterly beef production estimates (see table above) show a year-over-year decline of 200 million pounds is expected during each of the second and third quarters. However, during the fourth quarter of 2020, beef production is expected to be down a whopping 400 million pounds from the fourth quarter of 2021. This is very bullish for the fourth-quarter 2022 fed cattle market.
Feeder cattle prices are expected to trend sideways through until March or April. Finishing feedlot margins are expected to move into positive territory during this time. Secondly, we’re looking for a year-over-year increase in Western Canadian barley production. There is a slim chance for a drought two years in a row. Remember, western Canadian weather patterns occur in 18-year cycles and the summer of 2004 was cold and wet. Next spring, the feeder market will start to factor in larger feed grain supplies during the fall of 2022.
We’re expecting very strong October and December live cattle futures as well, which will reflect a positive feeding margin for the latter half of 2022. The feeder market is expected to move from extreme lows in the first quarter of 2022 to extreme highs by October of 2022. Keep this in mind when doing your marketing. If cow-calf producers can just hold over the next six months, you’ll be in good shape financially. The Western Canadian cow-calf producer who can manage drought risk the best will be the most successful long term.
For more content related to drought management visit The Dry Times, where you can find a collection of stories from our family of publications as well as links to external resources to support your decisions through these difficult times.
