Alberta packers were buying fed cattle on a dressed basis in the range $272-$275 during the second week of March, relatively unchanged from 30 days earlier. Live bids were reported at $161 f.o.b. the feedlot in Alberta. The Alberta cash trade continues to trade at a $13-14 discount to the U.S. However, this spread had narrowed by nearly $6 over the previous two weeks. Western Canada continues to contend with a backlog of market-ready supplies while U.S. feedlots are rather current. U.S. fed cattle prices were quoted at US$138-US$140 fob the feedlot for the week ending March 12.
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Beef demand drives cattle and beef markets higher
Prices for beef cattle continue to be strong across the beef value chain, although feedlot profitability could be challenging by the end of 2025, analyst Jerry Klassen says.
Beef demand appears to be somewhat softer compared to January. Inflationary pressures are starting to take a toll on the North American consumer, with 40 per cent of Americans living paycheque to paycheque. U.S. disposable income has been on a downward slope since the government stimulus of March 2021.
Feeder cattle prices in Western Canada have been relatively stable. As of mid-March, steers weighing 800-850 pounds were quoted from $188 to $195 in central Alberta. Calves have been trending higher during February and March. Steers weighing 500-550 pounds have readily been moving in the range of $245-$255. Grass conditions are favourable moving into spring and the February 2022 live cattle futures continue to trade near the contract highs of US$152.
The fed cattle market in Alberta has been functioning to encourage demand due to the year-over-year increase in fed cattle market-ready supplies. Feedlot placements in Alberta and Saskatchewan from June through October of 2021 were 1.045 million head, up 217,700 head from the same time frame of 2020.
Higher placements in the summer and early fall of 2021 have resulted in a backlog of market-ready fed cattle supplies in Western Canada. Trade estimates suggest that Alberta feedlots were backed up with over 120,000 head of cattle at the end of February.
The Alberta fed market will continue to trade below U.S. values in an effort to increase exports. However, it appears that this backlog will only be alleviated in June. If feedlots didn’t hedge their production in some fashion, feeding margins are negative $150-$220 per head.
U.S. feedlot placements from June through October of 2021 were 9.921 million head, down 246,000 head from the same timeframe of 2021. In the U.S., market-ready supplies of fed cattle are below a year ago. In addition to lower market-ready supplies, the U.S. total cattle slaughter will likely finish 100,000 head above year-ago levels for the first three months of 2022.
Production higher than expected
Beef production has come in higher than expected in the first quarter of 2022 but this is due to the year-over-year increase in demand. U.S. beef production during the second and third quarters will be similar to last year. However, U.S. fourth-quarter output for 2022 is expected to have a year-over-year decrease of 328 million pounds. It’s a bit early, but U.S. beef production during the first quarter of 2023 is also expected to be down 300 million pounds from the first quarter of 2022.
The Russia and Ukraine conflict is having a two-fold influence on the cattle complex. First, Russia and Ukraine have both implemented export bans on wheat, corn and barley. Elevator bids for new-crop feed barley are in the range of $8/bu. in central Saskatchewan.
As it looks now, Canada may be the main supplier of feed barley to China in the 2022/23 crop year. Barley exports could reach more than five million tonnes, which would cause supplies in Western Canada to be historically tight for the third year in a row.
Secondly, the sanctions on Russia will continue to drive inflationary pressures in North America, resulting in softer beef demand. In mid-March, China was implementing lockdowns due to the spread of the Omicron variant which is also contributing to supply chain backlogs.
U.S. grocery store sales during February 2022 were down 8.4 per cent from January 2022; U.S. sales at eating and drinking places during February were up 3.0 per cent from January but down 8.3 per cent from December of 2021. It appears that beef demand peaked in the last half of January and the first half of February. Retail beef prices have been grinding lower during the first three months of 2022. Inflation will remain at higher levels over the next six months and continue to bite into beef demand.
The yearling market has likely put in the seasonal highs for the time being. The fed cattle market will likely trade sideways to lower over the next couple of months and feed grain prices will remain at historical highs.
There is no room to bid up the price of yearlings. Calves are a different story. The fed cattle market will likely trend higher during the final quarter of 2022 and first quarter of 2023. This will offset the higher feed grain prices. Next spring, U.S. feeder cattle prices are expected to trade at the highest levels since 2015 if yield trends materialize for the corn crop.
