The laws of supply and demand have seen the gavel drop on good cattle prices of late in a rally that began about four months ago.
Live prices rose by US$20 per hundredweight in the last four weeks, reaching a high not seen since last August.
Where the market will top, or whether it already has, given a price decline earlier this week, will be revealed in the next few weeks, cattle market analysts say.
Volatility can be a signal that the top has been reached, but analysts predict prices well above break-even at least through June and maybe longer.
There’s demand for the tight supply calves in the cow-calf sector and feedlots are reacting to high packer demand by shipping slaughter cattle at lower weights.
Brian Perillat, senior market analyst with Canfax, said carcass weights are 81 pounds lighter, on average, than they were last October, when they reached an average high of 936 lb.
“Since then we’ve seen market-ready numbers tighten up,” said Perillat. “We’ve seen carcass weights drop phenomenally. We’ve seen some of the biggest drops, from Jan. 1 to the end of April.… Canadian and U.S. carcass weights dropped dramatically.”
Lighter weights mean less beef. Combine that with reasonable feed prices, a lower Canadian dollar, good export demand and seasonal retail promotions and it makes for a rosy picture in cattle production sectors.
“Overall I think the beef market, barring anything changing in the dollar, just the supply and international demand dynamics do bode well for cattle prices staying at these higher levels,” said Perillat.
He speculated that the record high cattle prices of 2014-15 may have pushed the trading range higher. Calves at $2 per lb. used to be rare, but now that price isn’t unusual.
Mike Murphy, analyst with Cattlefax, also cited lighter carcass weights in his analysis of current markets.
“It’s the biggest price move from Jan. 1 into the spring that we’ve ever experienced,” he said.
“We’ve had perfect marketings from a cattle feeders perspective because of big profitability, the strong live cattle basis, so that’s created a big drop in carcass weights,” he said in an interview at a Livestock Markets Association of Canada meeting May 13.
“We have, since the beginning of the year, the second biggest decline in steer carcass weights that we’ve ever experienced.”
“This is going back since 1980. The signal has been very clear for producers to do what? Sell cattle.”
In his presentation, he said the three “cardinal rules” affecting prices are all positive: cattle selling out of feedyards are profitable; futures markets are at a discount to the cash cattle market and there’s a positive swap (fed price versus purchase break even) on replacement cattle.
“A profitable cattle feeder will add stability back to the feeder cattle and calf markets,” said Murphy.
He predicted profits for the cow-calf sector for the remainder of the summer.
Auctioneers have also cited the carcass weight factor in the recent price rally and high demand.
“Some of the carcass weights have been a little bit lighter,” said Rhett Parks of the livestock market in Whitewood, Sask.
“You take 20 or 25 lb. less per animal, it doesn’t sound like much when you’re talking one animal, but when you’re talking millions of animals, that’s a lot of beef.”
Ryan Hurlburt of Saskatoon Livestock Sales said he’s seen good interest among producers for replacement heifers, but market prices are too tempting for some to consider retention and expansion.
“We have seen some producers … that would normally grass cattle, they have unloaded them. And that has a lot to do with the year before. They got scratched up so bad that they finally saw extra daylight.”
Murphy said the U.S. domestic herd is in expansion mode because feed is expected to be abundant and reasonably priced, and producers want to capitalize on favourable beef demand.
U.S. beef exports are also expected to rise. Last week President Donald Trump announced a beef trade deal with China, although there are no details. Beyond that, Murphy said exports will rise if the global economy remains stable.
“Our expectation really is for exports to continue to grow right on into the end of the decade.”