The lowest price at the retail meat counter is what matters to consumers

“Alberta Steers were trading in the range of $84 to $85 while heifers were in the range of $85 to $87. The cash market appears to be holding value but it is difficult to build a case for higher prices given the current economic situation.”

U. S. cattle inventory numbers are at their lowest levels since 1959 and the 2008 U. S. calf crop was the lowest since 1951. Negative margins in the feedlot and cow calf sector resulted in a smaller cattle herd. Unfortunately, further contraction is needed before the industry turns profitable. In the short term, the beef complex is still struggling due to a major shift in consumer incomes and larger competition from pork and poultry.

U. S. packing margins are an estimated $40 per head but wholesale values are softer. Choice beef was quoted at $142, down $6 from mid January; select was trading at $138, down from $144 a couple weeks earlier. Wholesale supplies are building and the packers are cutting back on the slaughter to support beef sales. Feedlots are holding back on cattle given the negative margins, which are in excess of $200 per head. Cattle traded in Texas at $82 in late January; at the same time, Kansas prices were the range of $81 to $82. Alberta Steers were trading in the range of $84 to $85 while heifers were in the range of $85 to $87. The cash market appears to be holding value but it is difficult to build a case for higher prices given the current economic situation.

U. S. unemployment continues to grow and this trend is expected to continue into the fall period. Consumer confidence is at record lows and there is no signal the economy is turning around. Retailers are struggling to sell higher end cuts as reflected in wholesale prices. Consumer buying patterns have also changed. Prior to the economic downturn, consumers would buy larger quantities of beef and store product in freezers. Comments from retailers now suggest that a larger number of consumers are buying on a hand-to-mouth basis. The choice between pork, poultry and beef is now made on a daily basis for many consumers and the lowest price wins. Families are budgeting on minimal disposable income.

The beef market also has stronger competition from pork and poultry due to the smaller export programs. Canadian and U. S. domestic markets will have to absorb larger supplies of all meats during 2009. Therefore, prices will have trouble moving higher despite lower than expected beef production.

The U. S. semi annual cattle inventory report showed total cattle numbers as of January 1, 2009 at 94.491 million head, down from 96.035 million head last year. The 2008 calf crop was pegged at 36.113 million head, down from 36.759 million head in 2007. Total beef cows as of January 1, 2009 were 31.671 million, down from 32.435 million on January 1, 2008. Heifers for beef cow replacement were 5.526 million head, down from 5.647 million last year.

The number of U. S. feeder cattle outside feedlots as of January 1 was lower than anticipated. We have realized heavier placements during December and January given the current margin structure of feedlots. The demand for light weight feeders has subsided during the winter because of the higher costs. Despite the lower numbers of feeder cattle, weakness in the deferred live cattle futures will make it difficult for the feeders to maintain any strength. Margins don’t pencil out right now if you buy feeders for June and sell them in November.

The fed cattle market traded lower after the January cattle on feed report. This is a negative signal because available supplies are poised to tighten into March. The numbers of market ready cattle will increase from April through June. Given the current demand scenario, additional supplies could result in lower fed cattle prices during the spring and summer.

Gerald Klassen analyzes cattle and hog markets in Winnipeg and also maintains an interest in the family feedlot in Southern Alberta. He can be reached at [email protected]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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