During the third week of April, Alberta packers were buying fed cattle on a live basis in the range of $222-$225/cwt delivered, which was a record high. Tighter market-ready supplies on both sides of the border along with a sharp year-over-year increase in demand have resulted a higher price structure.
During March, U.S. restaurant sales were up 14.5 per cent from February and up 13.8 per cent from March 2022. Early data reflects a similar year-over-year increase for this April. While restaurant spending has exceeded expectations, beef prices at the retail level are similar to last year.
Strength in the fed cattle market has pulled the feeder complex higher. As of mid-April, larger-frame 850-pound Simmental blended steers carrying light butter were quoted at $260 in central Alberta. Calf prices had surged over the previous month as the market factored in lower new-crop feed grain supplies. Ideas are that U.S. cow-calf producers will hold back a significant number of heifers this fall. Western Canada has received plentiful precipitation throughout April. Pasture conditions will be excellent this spring. Higher-quality steers averaging 600 pounds were trading in the range of $320-$340/cwt in Manitoba and Saskatchewan
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U.S. feeder cattle placements from October 2022 through February 2023 were 9.5 million head, down 550,000 head from the same period 12 months earlier. The year-over-year decrease in feeder cattle placements has resulted in lower supplies of market-ready cattle during the spring.
The U.S. beef cow slaughter has also dropped below year-ago levels. In addition to lower supplies of fed cattle, U.S. carcass weights are also down 10 pounds from last year. U.S. first-quarter beef production came in at 6.820 billion pounds, down 222 million pounds from the first quarter of 2022. For the second quarter, beef production is expected to finish near 6.675 billion pounds, down 400 million pounds from the 2022 second-quarter output. Market-ready supplies will remain snug until July. During July and August, supplies of market-ready cattle are projected to equal the demand requirements, which will result in lower U.S. fed prices.
Here at home
In Western Canada, feeder cattle placements from October 2022 through February 2023 were similar to a year ago. Cattle-on-feed numbers in Alberta and Saskatchewan are down only marginally from last year. Fed cattle exports to the U.S. have improved due to stronger demand. Feedlots in Alberta and Saskatchewan are current with production as carcass weights are down from last year. Basis levels were historically wide throughout the winter, but this is changing. The Alberta discount to the live cattle futures moved to an average level in April, resulting in a stronger cash price. It’s important to note that feedlot placements in the lighter weight categories have been similar to a year ago. It appears that market-ready supplies in Alberta and Saskatchewan will build in July.
Consumers are spending
Wholesale beef prices have been percolating higher. Restaurant spending is up approximately 14 to 15 per cent from last year while grocery store expenditures are up 10 per cent from a year ago. Beef demand tends to make a seasonal high in March and April.
“Away-from-home” food spending trends lower from April through August in a normal year. Grocery store spending is up from last year but it’s important to note that rally in retail beef prices has come to a halt. Grocers are unable to pass on higher beef prices to the consumer. The U.S. is experiencing a sizable year-over-year increase in broiler production and consumers are stretching their grocery dollar as far as possible.
Finishing feedlots have bid up the price of feeder cattle so that feeding margins barely cover feed grain cost. Further upside in the feeder market will depend on the live cattle futures making another leg higher. In the short term, this will be difficult. Therefore, yearling prices have probably put in their seasonal high. At the time of writing this article, the August live cattle futures were a US$12 discount to the April contract.
Calf prices are expected to trend higher from May through November. Australia and China reached an agreement on barley. Grain merchants are expecting Australian barley to trade to China from October forward. Canadian barley exports to China will be down significantly in the 2023/24 crop year. Barley prices could drop $100/tonne from current levels. The function of the feeder market is to encourage production. There is no doubt we will see some heifer retention in the U.S. Recent slaughter data shows a year-over-year decline in beef cow processing.
The fed cattle market is moving through a seasonal high and will likely trend lower in June and July. This will weigh on the yearling market during the spring. Calf prices are expected to trend higher as the market functions to encourage demand.
