Alberta fed cattle prices softened in July due to an increase in market-ready supplies and weaker wholesale beef prices. During the first week of August, Alberta packers were buying fed cattle in southern Alberta at $235/cwt fob the feedlot. This is down from the mid-June record high of $246/cwt. At the same time, wholesale choice beef was trading at US$300/cwt, down from the June peak of US$340/cwt.
Retail beef prices continue to hold value near historical highs while restaurant spending has exceeded expectations. While fed cattle prices have come off the highs, western Canadian feeder cattle markets continue to trend upward. In central Alberta, higher quality 900-pound steers are reaching up to the range of $310-$315/cwt. Steers in the 850-to 900-pound category are trading up to $315-$320/cwt. Compared to 30 days earlier, the yearling market is up about $20/cwt. The USDA’s July 1 Semi-Annual Inventory Report showed that the U.S. cattle herd remains in contraction phase. U.S. feeder cattle prices in Nebraska appear to be trading at a premium to central Alberta. The feeder market is bracing for stronger export demand for Canadian feeder cattle in the final quarter of 2023.
U.S. feedlot placements from April 1 through June 30, 2023, totalled 5.381 million head, up 59,000 head from second quarter of 2022. The marginal increase in placements during the second quarter will cause market-ready fed cattle supplies of steers and heifers to be similar to last year in the final quarter of 2023.
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Dairy cattle may factor in
The U.S. monthly beef cow slaughter is running 30,000 to 40,000 head below year-ago levels. However, the dairy industry in the U.S. is struggling with oversupply. We’re likely going to see a year-over-year increase in the dairy cow slaughter in the final quarter of 2023, which will offset a portion of the lower beef cow slaughter. This is important. In order for markets to go up, supplies need to tighten. In the fourth quarter of 2023, U.S. beef production will be very similar to the third quarter of 2023. Supplies are flatlining in the latter half of 2023 so the market will be very sensitive to changes in demand.
Feedlot placements in Alberta and Saskatchewan from April 1 to June 30 of 2023 were 315,800 head, down only 31,800 head from the second quarter of 2022. Due to the year-over-year decline in U.S. beef production, we’re expecting fed cattle exports to increase in the final quarter of 2023. Last year, the fed cattle basis was historically wide over the winter. During the fall of 2023 and winter of 2024, we expect the Alberta fed cattle basis to remain relatively strong. The domestic market will need to trade at a premium to the U.S market in an effort to curb fed cattle exports. At the same time, export demand for Canadian fed cattle will be stronger than last year.
Inventory highlights
There are three main points to consider from the U.S. Semi-Annual Cattle Inventory Report. First, the 2023 calf crop was estimated at 33.8 million head, down 664,000 head from 2022. Secondly, the number of beef cows as of July 1, 2023, was 38.8 million, down two per cent or 800,000 head from July 1 of 2022. Finally, the number of heifers for beef cow replacement on July 1, 2023, was 5.050 million head, down 100,000 head from 12 months earlier.
History tells us that the U.S. cow-calf producer needs one year of historical high prices before expansionary behaviour begins. We can also draw the conclusion that the previous highs in 2015 are no longer sufficient. The fed and feeder market needs to move to new highs. Fresh record-high fed and feeder cattle prices are expected during the spring of 2024.
Notice that U.S. first- and second-quarter beef production for 2024 is down over 600 million pounds each quarter compared to the same quarter of 2023. We expect fed cattle prices to trend higher in the first half of 2024 and this is driving the feeder market during the fall of 2023.
Beef demand is a concern. A one per cent increase in consumer spending equates to a one per cent increase in beef demand and vice versa. Consumer spending is two-thirds of GDP. The economy is expected to hold up in the latter half of 2024. However, we’re expecting U.S. and Canadian GDP to hover around one per cent growth in the first half of 2024. The economy will start to feel the effects of higher interest rates. The theme from the Federal Reserve over the past six months has been “higher for longer.”
Fed cattle prices will likely consolidate during the latter half of 2024 while feeder cattle prices have potential to percolate higher. Fed cattle prices will likely remain firm during the first half of 2024 due to lower beef production. However, beef demand is expected to decrease in the first half of 2024, which will limit the upside for fed and feeder cattle prices.
