Fed cattle prices appear to be moving in a counter-seasonal pattern largely due to an improvement in demand. U. S. on feed numbers continue to come in below year ago levels and nearby market ready supplies are tightening. Cattle in the U. S. southern plains in late April were trading at $88, up $4 from a couple weeks earlier. At the same time, fed steers in Southern Alberta were exchanged at $98/ cwt to $100/cwt. Feeding margins have improved and this has spilled over into the feeder cattle complex. Replacement cattle prices have been trending higher since January and the market has potential to strengthen further due to lower calf crops on both sides of the border. Unlike the hog complex, early data suggest cattle exports to the U. S. have been running very close to year ago levels after the Country-of-Origin Labeling law came into effect on March 16. This has also supported fed and feeder cattle prices as there seemed to be some fear in the market throughout the spring in regards to this policy.
The USDA reported cattle on feed numbers as of April 1 at 11.2 million head, down five per cent from last year. This survey was on the low side of pre report estimates and reflects cattle numbers are tighter than expected. Placements during April were up four per cent while marketings were down one per cent in comparison to April, 2008. The bulk of the placements were at the heavier end of the weight categories so this may temper strength in the deferred months. U. S. cumulative beef production is down nearly four per cent from last year and the slaughter is down almost six per cent. The dairy cow slaughter has been larger than earlier anticipated but this will decline later in the year. For the week ending April 18, the cows made up 17.1 per cent compared to 18.1 per cent last year, which is a good sign.
Canfax reported on feed numbers as of April 1, in Alberta and Saskatchewan at 947,131 head, up three per cent over last year. Placements were actually down three per cent and April marketings were up 17 per cent. Steady exports of feeder cattle along with demand for grass cattle have resulted in lower placements. This trend will continue into the fall period because of the lower calf crop.
Beef demand is showing signs of improvement, which has been a main factor supporting cattle prices. Wholesale prices jumped sharply in late April as choice product was quoted at $149/cwt, up $10 from a week earlier. Select prices were at $147.50, up $9 from last week. Stronger wholesale prices have given packers some breathing room. Packing margins are now improving which should encourage the weekly slaughter pace. Retail prices have also marginally improved moving into barbeque season. Therefore, we are seeing the wholesale retail spread narrow but the overall industry is fairly healthy from a margin perspective.
The economy is starting to stabilize and this is spilling over into the beef complex. All the negative news is likely factored into the financial and cattle markets at this time. Equity markets are up 20 per cent from the lows back in early March. Companies have shed excess weight and will now be more efficient moving forward. Layoffs are starting to slow and despite unemployment at 8.5 per cent; we may not see 11 per cent in Canada and the U. S. as earlier projected. Consumer confidence is slowly improving which is also a positive signal for beef demand.
Supplies of competing meats are also down from earlier projections. Lower U. S. farrowings in the first quarter will cause pork production to decline in the third and fourth quarters of 2009. Chick placements are also smaller than expected resulting in lower production while poultry exports have exceeding earlier projections. Beef exports are also higher than previously anticipated and there is potential for further improvements in the latter part of the year.
I feel beef production is now at levels where demand is more inelastic. The consumer who has not changed his eating habits by now will not likely do so for the remainder of the recession. I feel this is also reflective in the recent jump in wholesale values and current retail prices.
I’ve been talking up a bullish feeder cattle market since January. Each week, auction market prices tend to be higher and I don’t see this changing anytime soon. There is an old saying “buy something that is going up.” Don’t be afraid to buy in a rising market as this confirms your earlier purchases.
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.