Uncertainty lingers amid volatile cattle market

Feedlots are losing money with June live cattle futures closing at their lowest levels since the recession of 2008-09

Many cattle producers feel uneasy about the future as the market remains volatile during the COVID-19 pandemic.

The uncertainty in the market has particularly hit feedlot producers or those who background cattle, said Brian Perillat, a manager and senior analyst with Canfax.

He said feedlots have lost from $150 to $300 per head depending on the week. Feeder prices are also way off, he added, noting producers have recently lost 15 cents per pound per week.

“There is extreme volatility and they are facing steep losses. Feedlots are losing money,” he said. “If you look at the futures markets, they are much lower. Producers are worried and selling at these lower prices.”

The Canfax report said the June live cattle futures closed on April 3 at $81 per hundredweight, the lowest close for any futures contract since the recession levels in 2009.

The low prices come while demand for beef and wholesale beef prices have been high. Industry representatives have said it’s been unsettling to watch, and they hope the market adjusts.

“We’re watching that situation, and it’s one of those things where you have to wait and see what develops,” said Rich Smith, executive director with the Alberta Beef Producers.

Smith said organizations have talked with government about this issue and it may need to look at steps to help producers affected by the volatility.

In its April 3 report, Canfax said the spread between wholesale prices and fed cattle prices has narrowed. Wholesale beef prices are expected to decline, though cattle feeding losses are likely to persist for unhedged cattle.

Greg Schmidt, chair of the Alberta Cattle Feeders’ Association, said the market volatility is weighing on producers.

The cash prices and futures aren’t moving in sync, he said, which is making it difficult for future buying.

“From a planning perspective, where are you going to be at?” said Schmidt, who operates a family-run feedlot in Barrhead, Alta. “It’s the timing and the uncertainty. How long are we in it for?”

As well, Schmidt said the returns from the high wholesale beef prices don’t appear like they are being passed down to producers.

But while the wider margin between wholesale and live prices might be concerning, the bigger challenge is correction in the futures market.

“A lot of our risk management is done off of that, and there doesn’t seem to be a lot of connection now between that and what’s happening in the cash market.”

Schmidt said it’s critical processors and borders remain open.

“If we get a plant closure or border closure, that would be catastrophic for our industry and something we can’t withstand,” he said. “I think the focus of our industry is to keep the plants operating and the border open, because that’s the biggest concern right now.”

Dennis Laycraft, executive vice-president with the Canadian Cattlemen’s Association, said the organization’s first priority is to work with processors to ensure they can maintain operations.

He said there have been discussions about the differences in wholesale and live prices, but the priority is having an efficient system.

As well, processors have been making investments and incurring extra costs to keep plants running during the pandemic.

Marie-France MacKinnon, vice-president of public affairs and communications with the Canadian Meat Council, said packers have had to slow lines, add extra shifts for employees and implement physical distancing.

“We need to keep employees and inspectors working, we need everybody safe, because we have a country to feed,” she said.

Schmidt recommended producers be patient and cautious.

“We’re still trying to carry on business as usual. We’re still buying feeder cattle and replacing inventory cautiously,” he said. “People aren’t sure where this market is going to go. Break-evens in the future are quite a bit less than they are now, but it’s still a huge uncertainty if that’s low enough.”

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