Fed cattle supply outpaces demand, non-fed cow price lowest in a decade
Canadian supplies are outpacing demand. Even with more slaughter shifts, the fed market remained within a fall low trading range. Fall 2021 saw most trade fall within $155.61/cwt and $158.25/cwt. The mid-November average is $156.38/cwt for fed steers in Western Canada, $22.88/cwt above the same week in 2021. Higher input costs created negative feeding margins in the third and early fourth quarters.
In the U.S., cash prices rallied. A tightened market-ready supply created leverage for feeders. Packers are reaching to secure holiday inventory. The recent U.S. rally widened the basis level. Spot basis is -$7.67/cwt (as of mid-November). A wider basis should encourage more U.S. buyer interest; but 11 per cent fewer fed cattle (including cows) were exported to October’s close, totaling 364,162 exported.
Domestic kill and carcass weights bumped fed production 10 per cent above 2020. Fed steer slaughter is up nine per cent at 1,575,974 head. Fed heifer kill is up 10 per cent at 825,871 head. Early November saw Canada’s steer carcass weights at 946 lbs. and heifer carcass weights at 843 lbs., down two lbs. and 18 lbs., respectively, compared to a year ago. However, looking at cumulative weights for 2021, average steer carcass weights are up six lbs. and heifers up three lbs.
Nineteen per cent more cattle are on feed in Alberta and Saskatchewan than 2020. The November on-feed report stated 1,121,416 head on feed, not surprising given early drought movement. October placements were up 19 per cent, totaling 415,466 head.
Deb’s outlook for fed cattle: Fed cattle fundamentals suggest higher prices in North America through December and into the new year. The U.S. fed market has already improved as demand outpaces supply. Larger market-ready supplies in Canada present some basis risk in the near term; however, a wider basis and tight U.S. supply should mean a solid export floor. Retail beef prices are high but all proteins increased at the consumer level. Nonetheless, it will be important to monitor any changes in retail demand. Also watch for potential packing plant labor issues and any related production disruptions. Overall, feedlots should see effects of more leverage in the coming weeks. The market should be supported in early 2022.
Feeder volumes were lighter through early November, but feed availability, weather and bunk space pressured the market. Difficulty sourcing feed grains increased feed costs this fall. Buyers also held back due to winter storms. Although there is some strength on forward technical markets, break-even levels on currently placed calves are concerning.
All cattle classes dropped in early November. The 550-lb. steer average hit a new annual low the second week of November at $208.17/cwt, down $3.21/ cwt from late October and nearly $3/cwt under the same week in 2020. Heavier feeder cattle were down $5.57/cwt from October’s close and $13.25/cwt below September’s peak. The mid-November average of $182.13/cwt on an 850-lb. steer is $4.47/cwt higher than the same week in 2020.
At -$15.80/cwt in mid-November, the 850-lb. feeder basis is the widest since May 2020. A wider basis encourages exports, and to the end of October, seven per cent more feeders were exported than last year, totalling 107,697 head. That said, Canada continues to be a net importer of feeder cattle, with imports to the end of September totaling over 300,000 head.
Deb’s outlook for feeder cattle: Current losses at the feedlot level coupled with increasing feeding costs create a difficult position for feeders. The largest limiting factors are tight feed grain supplies and increasing cost of gain. Canadian drought placement patterns also limited bunk space for new feeders. However, December will see feeder volume tighten. Coupled with stronger forward live cattle futures and seasonal year-end demand, this should stabilize the feeder market.
The mid-November D1,2 cow price, at $60.90/cwt, is the lowest fall cow price since 2010. Non-fed prices were expected to decline due to seasonal trends and drought movement. Supplies remained mostly manageable but fed cattle left limited space for non-fed kill. As the D1,2 cow prices fell below U.S. prices, cow exports increased. Data separating cows from fed exports shows August exports to be the largest since fall 2014.
The weekly cow kill number for the first week of November tops 10,000 head, the highest since March. Total cow kill is 376,511 head, 12 per cent over 2020. However, 2020 had many production disruptions. When compared to 2019, cow slaughter is 10 per cent smaller.
Bull prices are lower. The mid-November average was $92.85/cwt, compared to $97.25/cwt a year ago. Exports to October’s close totaled 32,157 head, down 12 per cent. Canadian bull slaughter is up 43 per cent at 15,251 head.
Deb’s outlook for non-fed cattle: As North American fed cattle supplies tighten; cow demand will increase. Recent increased cow kills, seen locally, also support the market. Non-fed market lows increased interest in feeder cows at auction. As well, the discount to the U.S. market boosted exports, which will give the market a solid export floor. Typically, the non-fed market improves into the first quarter. This strong seasonal trend should hold; however, to what extent will depend on factors such as the fed cattle market trend and hook space for non-fed cattle.
Author: Debbie McMillan with Canadian Cattlemen.