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It’s strange times in cattle markets – and normal seems a long ways off

Prices, feeder cattle movement, and the basis are all behaving strangely this year, says analyst

If you’re confused about the cattle market, you’re not alone — it is not behaving normally.

Anne Wasko.
photo: Supplied

“We’ve got some interesting things going on,” said Anne Wasko, market analyst with Gateway Livestock. “Over the last six to eight months, we’ve had feeder cattle moving north since last fall. This year, we’ve got feeder cattle going south. It’s interesting to see that we’ve got cattle moving in both directions.”

There’s also a big difference in prices depending on which part of the country you’re in. In Ontario, cattle farmers are losing more than $300 per head, according to the Beef Farmers of Ontario. But that’s not the case in Alberta.

“I think what’s going on in Ontario is not exactly the same here,” said Wasko. “There are some losses starting to develop, but really what has been the saviour for western Canadian feedlots has been this record-strong basis that we’ve had.”

The strong basis has been in effect since last winter and through all of 2018.

“When you start getting basis levels that are above par, or well above the U.S. market… man, you’re adding $100 to $140 a head to the market that wouldn’t have been there in a normal basis year,” said Wasko, who ranches with her husband near Eastend, Sask.

Producers have been asking her how long the basis will last and she doesn’t have the answer.

“We continue to see cattle being purchased throughout Western Canada, which, the assumption is, that we will continue to have a strong basis for some time. That’s kind of what is driving the market right now.”

American live cattle futures are at a six-month high and beef demand has continued to stay strong. That’s a good thing, because more cattle are headed to market due to the shortage of feed on the Prairies.

“We’ve had bigger runs, whether you’re talking through the auction markets or video sales. Everybody is reporting bigger numbers, especially in the drier areas of southern Alberta and southern Saskatchewan — more than they would have seen at this time last year.”

The number of cattle coming to market hasn’t had an impact on the price just yet, and maybe it won’t, said Wasko.

“Last year, the market actually got stronger in October and November (although) I just don’t see that being the case this year.”

There are more cattle on feed because of the drought and more heifers are going on feed as well. There are more imports from the States in 2018 than there was in 2017.

“We’re going to go into the fall run with the feedlots with more inventory than we saw last year. It makes you wonder how long we can carry on down this trail,” she said.

But the real mystery is the price. Despite more cattle going to markets, prices are higher than a year ago.

These strange market signals are warning signs, Wasko added.

“When something… doesn’t quite make sense, it makes you sit up and pay attention. Something will come into line sooner or later.”

Herd numbers in Western Canada are down, but there was a pretty big cull for cows last year, and now there’s been more culling because of the drought.

“Cow numbers are getting smaller. The calf crop will get smaller. Last fall, there was 100,000 cows imported from the U.S. The cow herd is one thing, but don’t forget you’ve got that trade flow — whether it is import or export — to deduct from it or tack on to it. Last year, it was import.”

The futures market is full of volatility, both here and south of the border.

“When you see these moves up and down, lots of them have to do with Trump and tariffs,” she said. “Whether it be China and pork, you still feel it in the cattle markets. They’re all connected. We can’t say it doesn’t have an effect. The day when we’ve got some perceived good news — they rally and then you get the bad news about new tariff battles going on. It might not be directly with Canada, but it’s in the futures market that we’re pricing off of.”

Southern Alberta cattle feeders will likely be importing corn to mitigate the shortages on the feed side.

“At the grassroots level, that’s a different story,” said Wasko. “If you can’t get your hands on hay or alternative feeds, we’re going to see more cows go to town. And that’s starting to come up already with some auction markets talking about pairs coming in and splitting the pairs up and selling the calves and cows at the same time.”

The one thing that seems certain is that a return to business as usual seems a ways off.

“These confusing signals always say, ‘Well, something is bound to happen,’” she said.

“It’s likely that the market is trying to consolidate. The mixed news means a breakup or a breakdown in the market, and that’s what needs to get figured out next.

“But it’s hard to say what changes and when.”

About the author

Reporter

Alexis Kienlen lives in Edmonton and has been writing for Alberta Farmer since 2008. Originally from Saskatoon, she has also published two collections of poetry and a biography about a Sikh civil rights activist. Her freelance work has appeared in numerous publications across Canada.

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