Canfax report

This cattle market information is selected from the weekly report from Canfax, a division of the Canadian Cattlemen’s Association. More market information, analysis and statistics are available by becoming a Canfax subscriber by calling 403-275-5110 or at www.canfax.ca.

Fed market lower

Alberta direct cattle sales saw a moderate volume of trade last week, and the market tone was lower. Large out-front packer inventories continued to limit cash market demand, and buyer interest was lacklustre.

Light live trade on May 27 saw prices steady to modestly higher. A handful of early dressed trade was reported steady to higher than the previous week, but the majority of weekly rail sales were reported $25 per hundredweight lower at $225 per cwt. delivered.

Weighted average steer prices closed the week $3.75 per cwt. lower at $144.34 per cwt. The average steer price of two weeks ago traded above year ago for the first time in 13 weeks but reverted $1.53 per cwt. lower last week. Heifer prices averaged $8.25 per cwt. lower than steers last week and were almost $9.50 per cwt. lower than the previous week.

Last week’s Alberta cash-to-cash fed basis trended sideways at an estimated -$16.71 per cwt. The U.S. Department of Agriculture reported that western Canadian fed cattle/cow exports to the U.S. for the week ending May 16 were 16 percent larger than the previous week and 55 percent larger than the same week last year. Year-to-date volumes are six percent larger, totalling 200,073 head.

Ontario dressed trade saw prices build higher over the course of the week for the second and third week of June delivery. A handful of Saskatchewan fed cattle were also traded east last week.

Packer chain speed is gaining momentum, and slaughter capacity is slowly rebounding closer to typical pre-pandemic levels. Saturday shifts will be added as labour allows. However, it will take some time to work through the large backlog of market-ready cattle.

A significant portion of last week’s modest cash offering was not traded and rolled over into this week, so market-ready feedlot inventories will trend less current. Sluggish buying interest is anticipated, with little reprieve until supplies become manageable.

In the U.S., the market lacked enthusiasm after the Monday holiday and trade interest was sluggish last week. Moderate trade developed, and in the south were generally steady with the previous week from US $115-$120 per cwt. Prices ranged widely in the north with live sales reported from $112-$120 per cwt., steady to $3 per cwt. lower than the previous week.

The majority of northern dressed sales were reported steady with the previous week from $178-$190 per cwt. delivered.

Cow bids rise

Both major packers were bidding on the cow market last week, and prices were C$7-$8 per cwt. higher through the auction ring. D2 cow prices traded within $4.75 per cwt. of their high back in April, last week averaging $88.08. D3s averaged $77.14 per cwt.

Stronger prices have brought a few more cows to market. Recently, Alberta cow prices had been trading at a $7-$9 per cwt. discount to the U.S. Given the strength last week, prices are now about par with the U.S.

Western Canadian cow slaughter totalled slightly more than 2,800 head last week. Slaughter volumes are historically small but are expected to increase over the next few weeks, getting closer to 4,500 to 5,500 head on a weekly basis.

Western Canadian cow carcass weights averaged 818 pounds, which is 70 lb. larger than last year. Larger cow export volumes to the U.S. over the past month have helped moderate the backlog of non-fed cattle. U.S. 90 percent trim prices are trading over $300 per cwt., more than 30 percent higher than last year. The last time that happened was in January 2015 when the U.S. cow price averaged around US$110 per cwt. Prices today are in the low US $60s per cwt.

Larger heifer volume

Feeder and calf prices traded steady to higher and for the most part remain in line with last year. Last week there was a larger volume of heifers trading through commercial auction facilities compared to steers, which is not uncommon for this time of year.

Over the past couple of weeks, Alberta 550 lb. steers have been trading at a $7-$9 per cwt. premium over the U.S. market, the largest premium seen this year. Feeder cattle are also trading at a $3 per cwt. premium to the U.S.

The forward delivery market was lightly tested last week. Alberta, Saskatchewan and Manitoba heifers for August/September delivery saw a weighted average price of $172.74 per cwt. based at 891 lb., while heifers for October/November delivery saw a weighted average price of $169.48 per cwt. based at 960 lb.

Those considering retained ownership of grass yearlings for finishing should understand what kind of price and basis risk they assume. Using the August/September forward delivery price of $172.74 per cwt. at 891 lb. and assuming these heifers will be targeting the January fed market with an out-weight of 1,400 lb., profit margin and market risk can be estimated. Feed costs are a wild card, but in the above scenario, let’s use a cost of gain of $1.15 per lb. That means these yearling heifers would have a breakeven around $152 per cwt. and would need a +$3 cash to futures basis off the February futures to break even.

From a basis perspective, the five-year average cash to futures basis for January is -29 cents per cwt. So, these forward price heifers are likely being purchased at roughly $45 per head offside. A break even fed prices of $152 per cwt. does not seem unreasonable relative to the five and 10-year average. The five-year average fed heifer price for January is $164 per cwt. and the 10-year average is $147 per cwt.

Since the start of the year, 850 lb. steers have followed a similar price trend to 2018. Calf and lightweight stocker prices are toppy while heavier feeders are expected higher this week.

In U.S. beef trade, production has slowly rebounded over the past three weeks and is approaching normal pre-COVID-19 pandemic levels. Increased production pressured U.S. cut-out values sharply lower, with Choice slipping by $32.25 per cwt. to average $369.56 and Select slipping by $38.44 to average $344.09 per cwt.

The May 28 Choice cut-out value closed almost $106 per cwt. lower than the historic record high set on May 12 and was at the lowest level since April 30.

Fresh 90 percent trim firmed modestly $2.90 per cwt. higher last week on good demand. Cut-out values are expected to trend aggressively lower this week as cattle slaughter volume returns closer to normal capacity.

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