Alberta fed cattle prices were quoted at $164-$165 f.o.b. the feedlot during the third week of June, up from the range $158-$162 during the second week of May. The market has been quite firm due to tighter supplies of market-ready cattle on both sides of the border.
At the same time, the reopening of economies and favourable weather has enhanced beef consumption. U.S. air and land travel are increasing. Employment numbers are improving, albeit slower than anticipated. Feeding margins have been floating in positive territory over the past month for Alberta feedlots which booked their barley requirements earlier in spring. The favourable margin structure has contributed to stronger feeder cattle prices.
As of mid-June 2021, Simmental-based steers weighing 900 pounds were quoted at $190 in central Alberta, while Charolais-based heifers averaging 850 pounds were valued at $184. The April 2022 live cattle futures reached up to $138 in mid-June, the highest price in four years. We’re seeing contraction in the U.S. cattle herd for the third year in a row.
U.S. cattle on feed inventories in 1,000-head-plus feedlots were running five per cent above year-ago levels during the spring. Cattle on feed reports can be deceiving. While total inventories are above last year, market-ready supplies are actually below last year and below 2019. The fed cattle supply and demand were relatively in balance during the spring, but wholesale values were trading near historical highs. It’s important to note that most of the beef is sold on longer-term contracts. It’s similar to when a feedlot forward-sells a bunch of cattle and then has limited numbers available when the price rallies.
Moving into the summer timeframe, U.S. plants are renewing longer-term contracts with retailers and restaurant chains. Fed cattle prices in the U.S. Southern Plains hovered in the range of US$119 to US$121 during May and the first three weeks of June. We’re now seeing the U.S. fed cattle market starting to percolate higher. I believe the U.S. fed cattle market is in the early stages of a longer-term upward trend.
The Alberta fed cattle market has been trading $12 to $14 premium to values in the southern plains through the spring. Alberta plants didn’t have as many fed cattle forward-contracted and appeared to be able to take advantage of the higher wholesale values. Demand has been a large uncertainty for Canadian plants. This environment seemed to favour the Alberta processors because they had limited cattle contracted and a lower volume of forward sales. Cattle on feed numbers in Alberta and Saskatchewan as of May 1 were down five per cent from year-ago levels which is also contrary to the U.S. situation.
Beef demand expected to increase
I’ve mentioned in previous issues that beef demand is the major factor driving the cattle market. The opening of economies along with favourable weather has caused consumption levels to increase. Earlier in spring, restaurant traffic in the U.S. was running about 30 to 40 per cent below 2019 levels; Canadian traffic was down about 80 per cent from 2019. Recent data has U.S. restaurant traffic running similar to 2019, while Canadian data has numbers down about 40 per cent. This will continue to improve through July. Canadian and U.S. beef exports are also running ahead of year-ago levels.
Stronger fed cattle prices along with a bearish outlook for new-crop feed grains have caused yearling values to jump $10 to $12 over the past month. Calves are up nearly $5 to $8 from 30 days earlier. A large portion of the U.S. ranching states is experiencing drought-like conditions. On the drought monitor map, one can draw a line from Michigan to the Oklahoma panhandle. On the east side of this line is where the herd liquidation is occurring The January through May U.S. beef cow slaughter was estimated at 1.4 million head.
The last time the cow slaughter was this high was in 2010. The heifer slaughter is running about 170,000 head above year-ago levels, which suggests there is no heifer retention. There is no doubt the U.S. herd is contracting. Canadian feeder cattle prices have also been trading at a premium to U.S. values, which resulted in a sharp year-over-year increase in feeder cattle imports during the spring period. Western Canada had competitive advantage but this will likely erode during the fall. Those who have been reading my articles know I’ve advised Canadian cow-calf producers to expand their herds since the 2020 recession. In 12 to 14 months this will pay off handsomely.
Alberta feedlot margins are in positive territory and will likely remain profitable into the fall period. Stronger beef demand and tighter supplies of market-ready cattle will result in higher fed cattle prices. Weaker feed grain values during harvest along with higher fed cattle prices will also drive the feeder market higher. The U.S cattle herd is in the third major year of contraction. This bodes well for feeder cattle prices into 2022 and 2023.