During the first week of June, Alberta packers were buying fed cattle on a live basis at $261 per hundredweight, f.o.b, feedlot in southern Alberta, up $4/cwt from a month earlier.
Market-ready supplies of fed cattle were sharply above year-ago levels earlier in winter, but the backlog has slowly been alleviated through the spring period.
The Alberta fed cattle market has been functioning to ration demand by trading at a sharp premium to prices in Kansas and Nebraska.
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Despite the higher prices in Alberta, fed cattle exports to the U.S. continue to exceed year-ago levels, thereby further tightening the available supply in Western Canada.
Wholesale beef prices have been percolating higher. Restaurant spending in the U.S. has been running five to six per cent above last year. In Canada, data shows restaurant spending up only 0.5 per cent from year-ago levels.
Feedlot margins in Alberta have been hovering in positive territory during June after significant equity erosion over the winter and spring. Western Canadian feeder cattle prices continue to trade near historical highs.
It appears the U.S. will experience a year-over-year decline in the calf crop for 2024 and 2025. Heifer retention is not sizeable enough to warrant expansion.
On April 1, market-ready fed cattle supplies were at burdensome levels on both sides of the border. U.S. cattle on feed 150 days or longer were up 21 per cent from year-ago levels. In Western Canada, market-ready fed cattle supplies on April 1 were up about 40,000 head from last year. In addition to the larger available numbers, carcass weights were up 20-30 lbs. from last year. U.S. second-quarter beef production is expected to finish at 6.82 billion lbs., up 100 million from the second quarter of 2023. The U.S. April slaughter was up nearly 190,000 head from April 2023 which drained a large portion of the excess supply. In Canada, second-quarter beef output will be similar to last year’s Q2, but keep in mind fed cattle exports have been running 2,000 head per week above last year.
Surprise
As of July 1, the U.S. fed cattle supply and demand balance will be in equilibrium. During August, we’re expecting U.S. market-ready supplies of fed cattle numbers to be in a deficit position relative to the demand projection.
In Canada, fed cattle supplies tightened up in April so that the Alberta market traded at a sharp premium to the U.S. in an effort to curb exports. However, many feedlot operators forward-contracted cattle during the fall of 2023 and this was a surprise to the trade.
Fed cattle supplies in Alberta didn’t seem that tight but analysts and merchants underestimated the amount of cattle that were contracted to U.S. plants. On Aug. 1, market-ready supplies in Alberta are expected to be in a deficit of nearly 30,000 head relative to the demand forecast.
Feedlot placements under 800 lbs. have been sharply below year-ago levels throughout the spring. This trend is expected to continue. Notice U.S. third-quarter beef production will be similar to last year, but fourth-quarter production is expected to be down 227 million lbs. compared to 2023.
Wholesale beef prices have been percolating higher throughout May and June. Prices are expected to peak in July and then start trending lower in August. Similar to last year, packing margins are expected to come under pressure from September through December.
U.S. packers will likely curtail the slaughter pace to keep wholesale prices from dropping significantly.
Restaurant spending trends lower from September through mid-November before picking up for the holiday period. After grilling season wraps up, retail beef demand also softens in the fall period.
Cattle producers in Canada and the U.S. are not rebuilding the herd despite the higher prices. Given the cow slaughter pace and the number of heifers in the slaughter mix, we’re expecting a year-over-year decline in the U.S. and Canadian calf crops in 2024 and 2025. We’re only expecting significant heifer retention in 2025 which would result in a year-over-year increase in the calf crop for 2026.
There have been stronger prices for cow-calf pairs and bred heifers; this largely is a reflection of the current calf market, rather than a sign of herd rebuilding.
For the fall period, yearling heifers around 1,000 lbs. are valued at $300/cwt while yearling steers are quoted in the range of $320-$325/cwt. This will put 500-lb. steer calves at $500-$525/cwt, which is about $40-$60/cwt above current levels.
Conclusions
The fed cattle market will likely peak in late July or early August before trending lower into the fall and early winter. The feeder market will likely make fresh historical highs in August and early September. The feeder market will soften during October and November as the fed market comes under pressure.
For cow-calf producers and backgrounders, make sure you have your price insurance in place. When the market is at historical highs, assess your risk/reward. There is very little upside and significant downside potential.
