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What’s Ahead For 2011 Cattle Market?

Alberta fed-cattle prices have been trending higher throughout the fall period due to stronger domestic and export demand. Slaughter prices reached up to $97/ cwt in mid December, which is the highest price level in the past two years. At the same time, fed prices in the U.S. Southern Plains touched $104/cwt on a live basis, a seven-year high. Wholesale beef prices continue to percolate higher with select product values hovering at $165/cwt. Retail ground beef prices remain near historical highs and middle meats and higher end cuts are slowly improving.

It is important to realize that beef production for 2010 will likely come in higher than last year; the current price strength is due to an increase in disposable income and stronger consumer spending. Looking forward, demand will likely move in line with the seasonal tendency strengthening into the March April timeframe and then softening into the summer months. Beef production will exceed year ago levels in the first quarter of 2011 but then decline in the second and third quarters. Therefore, fed prices should stay rather firm in January, strengthen in March and April and then weaken into the third quarter. Demand-driven markets can be difficult to analysis but consumer confidence will be key to sustaining the overall price structure in the beef complex. Feeder cattle prices are expected to follow a similar pattern but heifer retention may result in abnormal price behaviour, especially in the latter half of the year.

U.S. feedlot placements during the fourth quarter of 2010 were higher in comparison to year ago levels which will result in larger beef production in the first quarter of 2011. Cow calf operators were experiencing higher prices while positive feedlot margins allowed operators to hedge favourable margins. Adverse conditions in the U.S. hard red winter wheat region also encouraged placements of lighter-weight cattle. The overall environment resulted in larger feeder supplies coming on the market, which was met by strong feedlot demand. Canadian placements also surged in November as many cow-calf operators held back on sales due to the abundant forage and feed grain situation. This trend will likely continue as the farmer cattle producer that back-grounded calves over the winter sells inventory. We are expecting a year-over-year increase in feedlot placements in western Canada during the first quarter of 2011. In conclusion, Western Canadian fed cattle prices may be relatively stagnant in January and February due to larger U.S. beef production. However, Canadian fed-cattle prices are expected to increase in March through May as exports to the U.S. increase due to lower U.S. beef production during this time. We should also see larger beef product exports to U.S. enhancing domestic basis levels from Canadian packers.

Feedlot operators in Western Canada will need a prudent risk management strategy as barley prices are expected to reach historical highs and feeder cattle values will also be very strong over the next two to four months. This may erode the margin structure despite realizing record strong cattle prices in the second quarter. A slight softening of the fed cattle market late in the third quarter may find feedlot operators holding high priced feeders while purchasing expensive feed grains.

Cow-calf producers also need to be wise during 2011. Replacement cattle are expected to be very precious in the January through April period but the feed grains market has potential to be very strong from May through August. A decline in feedlot margins in the third quarter may result in pressure on early yearlings and the September calf market. Therefore, feeder cattle prices may soften or even drop sharply during this time if feedlot margins significantly erode. The feed grain market is in a situation where the world cannot afford to have a crop problem in the Southern Hemisphere or in the U.S. This is a major risk for cow-calf producers over the next six to eight months.

Stronger consumer demand will continue to support fed cattle prices in 2011. An increase in U.S. beef production in the first quarter may temper Canadian live cattle exports and result in a stagnant market. Lower production in the second and third quarters should result in higher cattle prices. Feeder prices are expected to be strong in the January through April period but the potential for rising feed grain prices may weigh on the feeder market in late spring and summer.

GeraldKlassenanalyescattleandhogmarkets inWinnipegandalsomaintainsaninterestin thefamilyfeedlotinSouthernAlberta.For commentsorspeakingengagements,hecan bereachedat [email protected] or2042878268.

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