US BEEF AND VEAL SUPPLY AND DISTRIBUTION (MILLION POUNDS)
The Canadian fed cattle market remains under pressure largely due to the strength in the Canadian dollar. Cattle were trading hands in Southern Alberta in the range of $89 to $91 in the latter half of May, which is down $11 from the $100 level in mid April. At the same time, fed cattle in the U. S. Southern Plains were trading at $85; packers were paying $137 on a dressed basis in Nebraska. Canadian exports of slaughter cattle remain strong but could taper off in the summer months in line with the seasonal tendency. Retail prices are slightly higher on both sides of the border as demand shows signs of improvement.
U. S. cattle on feed totalled 10.822 million head, down three per cent from May 1 of 2008. Placements during April were 1.6 million, up four per cent from last year but analysts were expecting placements to be up 6.3 per cent. This is viewed as supportive for the deferred cattle prices. U. S. fed cattle marketings during April were down seven per cent from last year.
The U. S. cattle cycle is in a contraction phase; therefore we continue to see lower placements, lower numbers on feed which will result in lower beef production longer term. The number of cattle slaughtered in the U. S. is down six per cent from last year while cumulative beef production is only down 4.5 per cent in comparison to 2008. U. S. domestic beef production was raised on the recent USDA report due to the larger than expected marketing weights. It is important to note the third-and fourth-quarter U. S. production of 2009 will actually be above year ago levels. For 2009, total domestic U. S. production will be very similar to 2008 but we should see a sharper drop in 2010. We are starting to see corn and feed values increase, while feedlot margins improve so marketing weights may decline in the latter part of the year. Notice that beef imports are also expected to increase in 2010 to make up the shortfall in production. Domestic demand will start to improve next year while exports will also increase due to the weakness in the U. S. dollar. The U. S. market will move from a supply/push to a demand/ pull structure which should result in higher prices for fed cattle.
Cattle on feed in Alberta and Saskatchewan totaled 934,721 head as of May 1, up 2 per cent from May 1 of 2008. Placements during April were 130,647 down a whopping 22 per cent from last year due to the higher feeder prices. Feedlots started to shy away from feeder cattle as the market strengthened and the deferred cattle futures failed to move higher. Fed cattle marketings in the two provinces were down 19 per cent in April in comparison to April of 2008. This may suggest a larger than expected number of cattle will be coming on the market in the summer months. The year to date Canadian slaughter is down approximately one per cent from 2008 and beef production is very similar to year ago levels. Slaughter cattle exports to the U. S. from January through April were 294,000 head compared to 359,000 for the same period of 2008.
Canadian beef product exports decline sharply when the exchange rate nears par value with the U. S. dollar. The beef market on both sides of the border moves into equilibrium but the par value tends to slow overall export movement to U. S. considerably.
The overall U. S. meat fundamentals are reflecting a neutral price outlook from a supply perspective. However, I’m expecting domestic demand to increase later in 2009 and early in 2010 as the North American economies come out of recession. Inflationary factors will also drive beef and cattle prices higher. Outside markets such as crude oil are trending higher and this will spillover into the cattle market similar to the activity in the spring of 2008. Therefore, I’m somewhat optimistic for cattle prices in the third and fourth quarter of 2009. Strength in the Canadian dollar is expected to be offset by the higher cattle and beef prices in the U. S.
Feeder cattle prices have dropped approximately $5/cwt from their highs as the Canadian dollar strengthens. Export demand for Canadian feeder cattle is expected to stay strong due to the lower calf crops in the U. S. I still feel the feeder cattle futures have potential to trend higher in the final quarter of 2009 and first quarter of 2010. Some of these gains will be offset by the stronger Canadian dollar.
Looking at past history, when the Canadian dollar start to move, the trend lasts for a long period of time. Cattle producers should look at taking some protection on the Canadian dollar as we also saw how fast this market could move back in 2007.
Gerald Klassen analyses cattle and hog markets in Winnipeg and also maintains an interest in the family feedlot in Southern Alberta. For questions or comments, he can be reached at [email protected]or 204 287 8268.
The material contained herein is for information purposes only and is not to be construed as an offer for the sale or purchase of securities, options and/or Futures or Futures Options contracts. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. The risk of loss in futures trading can be substantial. The article is an opinion only and may not be accurate about market direction in the future.