In spite of producers’ fears in the spring, things seemed to have settled out a little bit in the cattle market.
The shutdown of Cargill in High River and the slowdown of JBS in Brooks left a backlog of cattle that many worried would pummel calf prices this fall.
“Our processing was limited in the spring,” said Brian Perillat, senior manager with CANFAX during the Canadian Cattlemen’s virtual town hall in late September.
“Through summer, we’ve recovered and processing levels are back to pre-COVID levels,” he said.
The plants have also been working through the backlog by adding Saturday shifts so they can slaughter six days a week.
At one point, the number of market-ready cattle that had to be held back at feedlots and farms hit around 130,000 cattle. But slaughter plants have since made impressive gains in reducing that number.
“Through the summer, we processed over 32,000 more than we did a year ago,” Perillat said during the Sept. 23 town hall. “We just got last week’s slaughter numbers. We processed about 7,500 more fed cattle (during the week) than we did last year.”
However, that still leaves a backlog of about 80,000 to 90,000 cattle left to work through.
“The cow market is hanging in there,” said Perillat. “It doesn’t have the premium it has compared to the U.S., so we’ll maybe see a few cows shuffle south.”
Carcass weights in Canada have gone up and are higher than a year ago.
“It’s something we’ve got to monitor as we still have some cattle to work through the rest of the third quarter and into the start of the fourth quarter,” he said.
Despite slaughter volumes increasing, Alberta fed cattle prices have struggled and have been well below year-ago levels all summer.
“That continues to be a weakness due to large cattle supplies on the market,” he said.
Despite the lower prices that feedlots are receiving for slaughter-ready cattle, feeder cattle prices have been strong through the summer, said Perillat.
The federal and provincial governments created a $43-million ‘set-aside’ program in Alberta to cover the costs of feeding cattle waiting to be processed. That program covered some of the losses during the spring, but feedlot losses have been significant.
However, the huge volatility in the fed cattle market has levelled off and calf prices are higher than they were a year ago and the futures markets have been projecting some stronger prices into new year.
“That’s something we’ve got to watch heading into the fall run,” said Perillat. “Just how long as these fed cattle prices going to be depressed and how much are they going to bid in, gamble and speculate on the market?”
The fall run has had a slow start. Sales of yearlings have ramped up, but sales of calves have been slower, he said.
Since there were no production shutdowns in Ontario, that market has not been significantly impacted, with Ontario prices at a slight premium compared to the Alberta market.
It is hoped that packers can continue working through the backlog quickly in this quarter. Spring placements were lower than a year ago.
“That should free up some space so we can work through this backlog,”said Perillat. “We can see some light at the end of the tunnel for the cattle on feed numbers, but we also have to remember, we placed a lot fewer this spring, and more cattle went on grass.
“We could see a lot more placements staying around, with a lot of feed around. Some cattle could background rather than going straight to finishing.”
There are a few other factors to watch.
The Canadian dollar, which fell below US70 cents in early spring, has been showing strength against the American greenback. As well barley prices are spiking back up and American corn prices are also rising. Both the dollar and the feed prices could affect calf prices.
And while the food service sector is suffering as the pandemic pummels restaurants, retail sales of beef are holding up quite well.
“Cut-outs are still hanging in there. Packing plants are making good profits and have a lot of incentive to kill more cattle,” said Perillat.
As well, feeder placements were lower in both the U.S. and Canada in spring, but more feeders were placed through the rest of the year in North America, he said.
“It’s not an imminent number, but we are going to have larger supplies in the fourth quarter,” he said.
The pandemic remains the wild card and the threat of packing plant shutdowns and supply chain issues has not gone away, Canadian Cattlemen’s Association president Bob Lowe said in his remarks to the town hall.
But everyone in the sector has to do their part, said Lowe, a rancher and feedlot operator from Nanton.
“As beef producers, we need to do our part to make sure we do not get more of an economic meltdown,” he said. “I would encourage everybody to remain vigilant about face masks and social distancing.
“The country can’t stand any more of an economic shutdown, so we need to do our part to make sure that doesn’t happen.”