1 1 U. S. QUARTERLY BEEF PRODUCTION (MILLION POUNDS) U. S. QUARTERLY BEEF PRODUCTION (MILLION POUNDS) % CHANGE 2010 FROM 2009 % CHANGE 2010 FROM 2009
5630 5400 5500
Fed cattle prices in Southern Alberta have been slowly ratcheting higher. Lower cattle-on-feed numbers along with a softer Canadian dollar has set a positive tone to the fat market. Export demand for slaughter cattle has been very strong and this trend will likely continue into the second quarter. Packing margins have been struggling, which has tempered the price upside. Wholesale values have come off recent highs and the market is still contending with slow restaurant traffic and sluggish retail movement for higher end cuts of beef. It appears that the recessionary factors are still limiting the overall strength in the cattle complex. Feeder cattle prices have been trending higher and will likely stay firm into the spring time-frame. Despite the slower export pace of feeder cattle, renewed optimism in the feedlot sector and a positive longer term cattle outlook has caused buyers to step forward more aggressively for lightweight feeder cattle.
Fed cattle in Alberta were trading in the range of $76/cwt to $78/cwt in early February, which is up $2/cwt from a month earlier. At the same time, the Canadian dollar has dropped from the highs of U. S. 97.50 cents to under U. S. 94.50 cents. The sharp drop in loonie has improved export demand for cattle and beef products. Fed steers in the U. S. southern plains were moving in the range of $87/ cwt to $88/cwt. The strong U. S. market is pulling Canadian prices higher and this will likely continue into April. February weather has been quite harsh for the cattle feeding industry in the U. S. mid-west. The futures market tends to incorporate a risk premium due to the uncertainty in production as feedlots experience lower efficiencies. Adverse conditions also cause lower carcass weights which will bode well for the market in the short term.
Beef production during the first and second quarters of 2010 will be down marginally from 2009; however, notice the significant changes since 2008. If we account for imports and exports, first quarter supplies available for the domestic market could be down by 200 million pounds. This is due to the resumption of beef exports to pre recession levels.
Total U. S. beef exports for 2010 are expected to reach 2.040 billion pounds, up from 2009 exports of 1.871 billion pounds and 1.887 billion pounds in 2008.
Beef demand is showing little signs of improvement; however one bright spot is the lower U. S. pork production. Pork is always the lower priced meat compared to beef, but the decreasing supplies should result in slightly stronger beef demand. Export markets are starting to improve for pork, draining off excess supplies from the domestic market. I feel the pork market could actually be very strong in June, back near historical highs, which should spillover into the cattle complex.
Consumer expenditures and overall financial confidence levels are slowly improving, but are still far from levels where beef demand increases significantly. U. S. unemployment dropped to 9.7 per cent in January, down from 10 per cent in December. Jobs are still quite scarce despite seeing U. S. GDP jump by 5.7 per cent in the final quarter of 2009, the fastest in 6 years. Consumer spending is the key factor to lead the economy out of recession. People are not eating out as often and high-end steak house traffic is still down 25 per cent from normal. Average 2010 U. S. per capita beef consumption is expected to be 59.9 pounds, which is down from the 2009 level of 61.3.
In conclusion, lower on-feed numbers along with smaller carcasses should result in lower beef production. While export demand is improving, domestic consumption is still quite sluggish. The fed market is expected to trend higher into March and then start to ease in April. Unemployment levels are expected to decline throughout 2010 and rising consumer confidence will bode well longer term. I’m quite optimistic for fourth quarter fed cattle prices.
The feeder cattle market should continue to better values into the summer months. While export demand has not improved, the market is contending with smaller calf crops. There has been surprisingly strong interest in light weight calves with grass cattle purchases coming forward sooner than normal. I’m expecting very tight feeder cattle numbers from May through August.
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.