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Demand Boosts Cattle Prices

Fed cattle in southern Alberta were trading in the range of $76 to $78 in late January. The market feels balanced at the current levels with steady demand matching good offerings. While the Canadian dollar remains firm, the overall tone has improved with demand starting to come forward after the holiday season. Carcass weights are grinding lower, which is a positive signal and feedlots are more current now that the slaughter pace has improved. The U. S. slaughter market is showing a premium over domestic values encouraging the export pace. Nebraska sales were quoted at $84 to $85 on a live basis and $137 on a dressed basis. U. S. carcass weights are under year ago levels and the colder temperatures have stressed cattle. Extreme wind and cold temperatures have tempered efficiencies but we have not heard of excess death loss or any other major problems. U. S. wholesale prices have rallied to a seven-month high and packers appear to be in a better position financially. Beef exports are coming on stream to pre-recession levels and the market is moving through a period of seasonally strong domestic demand. This sets a positive environment for the next couple months and I like to think that we are starting an upward trend.

Cattle on feed in Alberta and Saskatchewan totaled 966,410 head as of January 1, 2010, down seven per cent from last year and down two per cent from January 1, 2008. This number is rather surprising given the slower export pace of feeder cattle; we believed the on feed number would be higher. This suggests that cow/calf producers have been holding back on sales throughout the fall period and available supplies of feeder cattle should increase over the next couple months. The lower on feed number is very supportive for the Canadian price structure. I’ve tempered my views on the Canadian dollar. The U. S. dollar appears to be moving higher and this will limit the upside on the loonie. This should keep the slaughter export program quite strong in the first quarter of 2010.

Private research suggests that restaurant traffic is only expected to increase in the summer of 2010. The choice select spread is quite narrow, which reflects that lack of demand for the quality steaks in the restaurant business. It is difficult to say the market is experiencing stronger beef demand due to an increase consumer incomes. However, I feel that beef demand should slowly improve through 2010 and I’m confident to say that the worst is over. Higher end cuts of meat are still under pressure on retail shelves, which will continue until March. Stronger wholesale values have given the packer some breathing room after a difficult year. The fact that overall beef carcass value is improving is a positive signal. Byproduct values of the animal products, have turned a corner and helping the overall packing margin structure. For example, leather demand for seats from the car industry has improved. Cattle by product values are up 70 per cent from the lows back in March of 2009.

Feeder cattle prices are slightly firmer due to lower corn prices in the U. S and softer feedgrain values in Western Canada. If we value Western Canadian feeder cattle in U. S. dollars, prices are 20 per cent higher than last year due to the stronger Canadian dollar. U. S. feeder cattle are up five per cent while U. S. fed cattle prices are down three per cent. Mexican feeder cattle prices are actually down five per cent from year ago levels. U. S. imports of Mexican feeder cattle were up nearly 45 per cent in 2009.

U. S. heifers are making up a larger portion of feedlot placements and the slaughter mix. This has a larger implication on cattle price. In the short term, herd inventories decline resulting in lower calf crops, feedlot placements are larger than normal increasing beef production and pressuring cattle prices. In the final quarter of 2010, strength in the fed cattle market will spillover into the feeder complex and encourage herd expansion. Heifer retention will increase resulting in lower feedlot placements and lower beef production. This is a very important concept for the cow calf producer and feedlot operators because the feeder market can move through some violent price swings.

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.

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