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CANFAX Cattle Industry Update: A Perspective on the Market

27/01/2017


MNP is a proud sponsor of CANFAX, a division of the Canadian Cattlemen’s Association. CANFAX has been providing expert analysis and up-to-the-minute information to its members for over 40 years. We are pleased to sponsor CANFAX’s market updates as part of our ongoing commitment to supporting, educating and helping members of the beef industry prosper. As part of our sponsorship, we are pleased to share quarterly updates from CANFAX to ensure you are kept up-to-date on the latest opportunities and challenges facing this important industry.

For more information on how MNP can assist your livestock operation, contact Scott Dickson, Director, Livestock, at 403.346.8878 or scott.dickson@mnp.ca.

In each of the years—2014, 2015, and 2016, the swing in the value of a fed steer from the annual low price to the annual high was over $700 per head. For calf prices, the swings were not quite as dramatic, but the changes within each year’s high to low still swung calf values $465 (2015) and $680 / head (2014). There have been many large and rapid market changes in the past three years, and this has left many cattle producers on edge. At the current time, it is somewhat unfortunate that the extreme volatility has overshadowed the positive market situation. The start of 2017 saw calf prices back over $200 / cwt, and in some cases feedlots in western Canada are making almost $300 / head. Traditionally, this would be considered very strong market conditions, but uncertainty, and the extremely high prices in 2014 and 2015 makes keeping the market in perspective difficult.

To start the year, Alberta 550 lb steer prices were over $200 / cwt, and while they were about $60 / cwt below last year at the same time, they are over $30 higher than 2014 and almost $50 higher than 2013. It is a similar story for fed cattle prices, as current prices are still at the third highest level for this time of year. While these prices levels do remain historically strong, it is important to remember that from the feedlots’ perspective, they have just been through one of the biggest equity drains they have ever seen, and after about 16 straight months of losses, it will take more than one profitable month to build confidence.

Decreasing calf prices helped lower feedlot break evens, but feedlot profitability is also very much related to the strong rebound in prices to end 2016. From the early fall lows, fed cattle prices rebounded 23%, and similarly, calf prices increased 17%. These are significant rallies in a short period, no matter what the market conditions. There are several positive factors at play. The stronger U.S. market combined with a weaker Canadian dollar, an abundance of feed grain and forages, as well as record strong basis levels have all added to improved market prices and / or reduced costs. It should also be noted that while western Canadian basis levels have been historically strong, Ontario basis levels had been disappointing at the end of 2016. That said, Ontario basis levels have improved somewhat but remain weaker than the west. Alberta fed cash-to-cash basis levels have hit record strong levels this winter, with prices premium to the U.S. at times. At the start of January, the basis was +4.15 and the last time the fed basis was positive in January was in 2002. The Canadian dollar can often be the main driver for Canadian prices, and while the Canadian dollar is higher than a year ago, it still remains below the long term average of 80 cents which is considered supportive. Western Canadian barley prices are almost $50 / tonne lower than a year ago, and an abundance of feed wheat has also been brought into feeding rations this winter which further improved feedlot margins and the calf market.

The market is a long way from the highs seen in 2015, but prices are still relatively strong and creating profit opportunities for cattle producers. On the other hand, broader market trends of increasing meat supply and uncertain global demand could likely push the market lower through the next couple of years of this cycle. This recent rally is likely not a full trend change in prices, but does point to some stability in the market place. Cost management and risk management will continue to be critical for producers to build and protect profit margins.

For more information on cattle markets, or to become a Canfax member, please visit www.canfax.ca