Western Canadian fed and feeder cattle markets are poised for volatile behaviour over the next four to six months. U.S. first- and second-quarter beef production are expected to come in below a year ago. During the third and fourth quarters, there will be a sharp year over year increase in beef production. As of late March, Alberta fed cattle were trading in the range of $154 to $156 on a live basis. I wouldn’t be surprised to see prices drop to a range of $138 to $140 by September.
The feeder market is also in a very precarious situation. In late March, mixed steers averaging 850 pounds were trading in the range of $170 to $175 across the Prairies. Calves from 500 to 550 pounds were readily selling from $225 to $232. Year-to-date Canadian feeder cattle exports to the U.S. for the week ending March 2 were up 27 per cent over a year ago. Stronger exports have come on the heels of a one per cent year over year decrease in the Canadian calf crop.
Burdensome U.S. supplies
While Canadian supplies are rather tight, U.S. feeder cattle supplies are quite burdensome. I’m forecasting a surge in feedlot placements from March through May as feeder cattle move off small-grain pasture in the U.S. Southern Plains.
U.S. first-quarter beef production was estimated at 6.390 billion pounds, down 75 million from the first quarter of 2018. For the second quarter, I’m expecting production to finish at 6.600 billion pounds which is 210 billion below the current USDA estimate and down 124 million from the second quarter of 2017. If we look at the feedlot placements by weight category during November through January, it appears that the weekly slaughter pace during May and June should be sharply below a year ago. Secondly, U.S. carcass weights are running seven to 10 pounds below last year. Keep in mind beef demand tends to make a seasonal high during March and April and this will contribute to stronger prices for fed cattle.
I’m expecting third-quarter beef production to reach 7.150 billion pounds which is up 80 million pounds from the USDA estimate and up 350 million from the third quarter of 2018. Beef demand makes a seasonal low during September. The year-over-year increase in supplies along with seasonally low demand will result in lower prices during August and September.
Yearling prices sideways
Yearling prices have been trading in a sideways range through March. Prices for feeder cattle in the heavier weight categories will likely grind lower during April and May when U.S. feeder cattle move off small-grain pasture. Keep in mind barley supplies are expected to drop to historically low levels at the end of the 2018-19 crop year. The potential for lower fed cattle prices in the third quarter along with strong feed grain prices will keep yearlings under pressure during the spring timeframe.
Statistics Canada’s cattle inventory report had the 2018 calf crop at 4.297 million head, down from 4.358 million head in 2017. We mentioned earlier that U.S. feedlot placements have been below year-ago levels as feeders remain on small-grain pasture longer. This has enhanced demand from south of the border for Canadian feeder cattle.
There are two reasons why prices for these lighter-weight feeders will remain relatively flat over the next couple of months. First, the grain industry is anticipating a 15 per cent increase in barley acres this spring; analysts are also expecting an increase in U.S. corn acres. When these grass cattle are sold during the fall, barley prices could be $40/mt to $60/mt below current levels. Secondly, the April 2020 live cattle futures have been trading above the $122 level. Similar to this year, the market is factoring lower beef production during the first quarter of 2020 when these cattle are finished.
Each weight category has distinct fundamentals resulting in a specialized price forecast. Fed cattle prices are expected to trade sideways until late May and then trend lower into the fall. Higher third-quarter beef production along with seasonally soft demand will result in lower prices in September. Yearling prices are expected to trend lower over the next couple of months due to the strong feed grain prices.
We’re going to see a surge in U.S. feedlot placements as feeders move off small-grain pasture in the U.S. Southern Plains. This will curb export demand for Canadian feeders and also contribute to the lower price structure for yearlings. Grass cattle are expected to remain firm. Feed barley prices are expected to be significantly lower next fall and the April 2020 live cattle futures have been trading near contract highs.