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Tight Supplies Firm Market

Fed Steers in Southern Alberta were trading $88/ cwt in late June while market-ready cattle in Kansas were shifting hands at $83. The cattle market appears to be firming up on anticipation of tighter supplies in the third and fourth quarter. Cattle on feed 120 days or longer are starting to decline after moving through burdensome numbers earlier in June. US steer carcass weights averaged 832 pounds in late June, up four pounds from last year; beef production is coming in marginally higher than earlier anticipated. Wholesale prices remain under pressure as the market functions to encourage consumption. Packing margins are in positive territory but very sensitive given lower wholesale prices. By product values are also soft due to slower demand for leather seats. Hides make up 70 percent of the by product value and are mostly used for leather seats and shoes.

The deterioration of the North American car industry is having a negative effect on packer margins on both sides of the border.

The economics and profitability of cattle feeding have changed over the past month. Dry conditions in Alberta and wes tern Saskatchewan have caused forage and hay supplies to become extremely tight. Secondly, lower barley acreage and adverse growing conditions has caused barley prices to trend higher. Corn prices have been trending lower due to the larger acreage and regular precipitation. Therefore, feeding margins are more favorable south of the border due to the lower priced corn and other feed sources. Alberta and Saskatchewan feeders are at a disadvantage to their US counterpart

US Cattle on feed as of June 1 totaled 10.4 million head, down four percent from last year. Placements during May were 1.64 million, down 14 percent in comparison to May of 2008; fed cattle marketings during May were 1.95 million, nine percent below May of 2008. Marketings and placements were at the lowest levels since the series began in May of 1996.

US quarterly beef production is projected to increase in the third and fourth quarters. Exports during the latter half of 2009 should also increase. Therefore, despite the larger production, available supplies for the domestic market will be down from last year.

Cattle on feed in Alberta and Saskatchewan totaled 868,514 head as of June 1, up two percent from last year. Placements during May were 122,537, down 15 percent in comparison to May of 2008. Fed cattle marketings during May were 153,380, down six percent from last year. The year to date Canadian federally inspected slaughter for the week ending May 30 was 1.249 million head, down 2.0 percent from last year. Canadian beef production was 976.5 million pounds, down 2.9 percent from last year. Canada has not experienced the heavier carcass problem as in the US.

Canadian slaughter cattle exports to the US from January through May were 339,383 head, compared to 415,601 in 2008 and 357,238 head in 2007. Cattle on feed are up two percent but the Canadian slaughter pace is down two percent and slaughter cattle exports are down 18 percent. This is not a good sign for the upcoming summer months. It is important to note that placements in Alberta and Saskatchewan from August through December of 2008 were 1.194 million head, up 11 percent compared to 1.075 in 2007. The industry is expecting larger fed cattle marketings during July and August will weigh on the domestic Canadian market.

Feeder cattle prices have held value over the past month. Dryer conditions in Alberta and certain regions of Saskatchewan have caused some herd liquidation. Some feeder cattle are coming on the market sooner than anticipated. Given the current Western Canadian placement numbers and feeder cattle exports, it appears that Canadian producers were holding back on sales in the first half of 2009. Despite the lower calf crop in Western Canada, feeder cattle numbers in the third and fourth quarter are expected to be very similar to last year. Secondly, feeding economics will be more favorable in the US over the next 12 months. This will make the feeder market heavily dependant on the export program in the latter half of the year. Feeder cattle exports need to surge from September through December to maintain the current price structure.



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