The flow of feeder and butcher cattle moving through the Manitoba yards during the week ended Aug. 10 continued to fetch relatively firm prices, although volumes remained on the light side with many locations still shut down for the summer. When the fall run eventually starts up, prices seen in Canada will likely be highly dependent on activity in feed grains.
“Until the feed side of the equation is settled, we’ll be up in the air in terms of both yearling and calf prices,” said Herb Lock of Farm$ense Marketing in Edmonton. While calf and yearling prices are currently above where they were a year ago, feed prices are also higher and Lock was uncertain if there would be any upside in the feeder cattle market.
With the cost of gain in southern Alberta currently at about $1.10 per pound, he said there wasn’t much of a premium for a feeder steer over a fat steer.
In addition, without any real demand from south of the border, the yearling price could also stumble in the face of higher grain prices, said Lock.
There is the potential for a large grain crop in Western Canada, which would normally bode well from a cost-of-gain perspective. However, Canada is living in a bit of a bubble, given the better crop and pasture conditions compared to the U.S., said Lock.
U.S. livestock feeders are likely losing US$250 per head, while Canadians are losing C$150 to C$200, “if you bought the cattle and the grain today,” said Lock. However, the risk was likely managed earlier, which would alter the actual numbers.
He expected the U.S. drought would lead to an increase in cull cattle being marketed in the U.S., and the resulting increase in beef supply could weigh on prices. The longer-term outlook is a little more bullish, but the market will need to get over a supply hump in the U.S. in the short term, said Lock, noting that the Canadian “tail doesn’t wag the (U.S.) dog.”
Another factor to watch for in the cattle market going forward will be how the post-CWB grain market shapes up, now that international buyers will be picking grain up directly from farmers. With more companies in the grain trade, there may be more grain tied up in contracts and less available for the feedlots, said Lock.
While feedlots may be losing money in the current environment, cow-calf producers willing to hold on to their animals a little longer may be able to generate some profits. The cost of gain on the farm is in the 75- to 80-cents-per-pound range, compared to $1.10 at the feedlot, which means the longer it stays on the farm, the greater the potential return for the cow-calf producer, said Lock.
However, that side of the market is populated with many smaller operations, which may or may not see the benefit in holding on for an extra $50 per head, he added.
Cost of feed will be an important factor to watch for going forward, said Anne Dunford, cattle analyst with Gateway Livestock Exchange at Taber, Alta. “From a North American perspective, cattle prices are established in the U.S. — so what drives the cattle prices up or down in the U.S. will have the same impact here.”
As a result, she anticipated the higher U.S. feed grain prices would have a negative impact on Canadian feeder prices heading into the start of the yearling run and into the calf run later this fall.
Canada does still hold a slight feeding advantage over the U.S., although the recent strength of the U.S. dollar was negating some of that advantage, said Dunford.