The lingering effects of the battle against COVID-19 have kept cattle prices lower than expected, given strong beef prices and demand.
The Choice cutout 600-900 pounds in the United States in April has been running very strong for this time of the year and was at US$293.76 per hundredweight, about $70 higher than the five-year average at the same point.
However, the average live steer price was at only about the five-year average.
(The Canadian AAA cut-out is not available. For additional Canadian data, read the weekly Canfax report in The Western Producer.)
The lack of a strong cattle price rally is frustrating feeders and calf producers as they watch grain prices and competing hog markets soaring higher. However, fed cattle supply is expected to tighten in the coming months and that might help to push prices to the producer higher.
Comparisons of the current cattle market and data to last year are difficult because it was in late April 2020 when slaughter at American plants collapsed as COVID outbreaks forced several packers to close temporarily.
The number of slaughter-ready cattle backed up and fed prices plunged while supply of beef shrank, causing sticker shock at the retail meat counter. The situation in Canada was similar.
After a few weeks the worst of the situation was over but the effects lingered though the year.
We are now in spring, a time when the cutout normally strengthens as barbecue season approaches.
This year, beef demand is expected to be especially strong as Americans enjoy the benefits of a quick rollout of COVID vaccines, allowing states to scale back restrictions on dining establishments and larger gatherings.
But the pace of U.S. cattle slaughter is not setting any records.
Working at its strongest pace, it can handle about 680,000 a week.
Even with labour shortages and safety measures that slow chain lines, U.S. packers should be able to slaughter more than 650,000 head a week. However, on the week beginning April 3, it slaughtered 603,494, followed by two weeks with slaughter between 640,000 and 642,000. On the week of April 24, it rose to 665,000, but fell back to 649,000 the following week.
The supply of fed cattle is ample to meet that pace.
The April 1 U.S. Department of Agriculture cattle-on-feed report said there were 11.9 million head in feedlots, the second highest inventory for that date since the report began in 1996.
The supply is comfortable, but not overwhelming. It is worthwhile to compare the numbers to the 2019 April 1 report because the 2020 report was thrown out of line by the effects of the pandemic.
The April 1, 2019 inventory was at 12 million, the largest in the report’s history and so this year’s number was down about one percent and indeed was a little smaller than what the trade expected.
If packers could pick up the slaughter pace a little, the supply and demand balance would improve.
But aside from the raw numbers there is another issue working against fed cattle prices. With corn feed costs soaring, feedlots have no interest in holding back cattle to try to get packers to pay more. They want to market as soon as possible to reduce costs.
So, packers are in the driver’s seat for now.
We are in the contraction phase of the cattle cycle and given the shrinking calf crop we should start to see fewer fed cattle later this year.
The trend of fewer calves should continue into the coming year because in the first quarter of this year, the beef cow slaughter was the largest since 2010.
Prices in the coming weeks and months should also be supported by the strength in the competing pork market. Hog futures are the strongest since the records set in 2014.
There are fewer American hogs than forecast earlier this year and domestic and export demand for pork is strong.
U.S. pork exports are down six percent from last year at the same point, but are still considered good because last year was in a league of its own, soaring 73 percent ahead of the pace in 2019.
Beef exports are up year over year, rising four percent, thanks mostly to a big jump in beef movement to China.
A wild-card in the cattle market outlook is the weather.
Drought blankets most of the west of the United States and the Dakotas. Iowa is also dry but significant rain was expected in that key state in the first few days of May.
It is also dry in large parts of the Canadian Prairies.
The dry weather hurts pastures and if rain remains scarce it will keep feedgrain prices high.