Producers slashed the herd to its lowest level in decades due to high feed costs and drought in the western United States, increasing the prices Tyson must pay to buy livestock for processing.

Lower costs for grains fed to cattle and improved conditions for grazing are encouraging factors for increasing the U.S. herd, though high interest rates are a headwind, King said at a BMO Global Farm to Market Conference.

Tyson’s beef business, its biggest segment, suffered an adjusted operating loss of $151 million in the six months to March 30, compared to income of $137 million a year earlier.

Brazil’s JBS, the world’s largest meatpacker, also said on Wednesday that it continues to see reduced cattle availability in the United States and demand constrained by higher beef prices.

Improvements in Tyson’s chicken business are offsetting difficulties in beef, King said, after it shut six U.S. chicken plants since the start of 2023. Poultry diseases and other issues are constraining U.S. chicken production, he said.

“We see today the industry trying to supply more birds but there’s been a little bit of bumping our heads against the ceiling,” said John R. Tyson, chief financial officer. That is “constructive for chicken margins,” he added.

Feed is generally the biggest cost for raising poultry, and corn and soy prices hit three-year lows this year. Farmers are now planting crops that will be harvested in the autumn, after a record corn harvest in 2023.

“Even though we’re still early in the planting season, I think everyone is comfortable and confident about where production is headed this year,” John R. Tyson said.

“It’s possible that we’re getting back into those pre-Covid levels or 10 years ago, where corn was trading $4 minus, as compared to where we were a year ago, above $6.”

Chicago Board of Trade December corn futures CZ24 traded just below $5 per bushel on Wednesday.

—Additional reporting for Reuters by Granth Vanaik in Bengaluru

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Economy: Consumption slowdown, inflation downtrend and interest rate implications

A second consecutive year of weak growth is in the cards as the impacts of earlier interest rate increases are felt more acutely throughout the Canadian economy in 2024. Consumption spending, which accounts for nearly 60 per cent of GDP, should see a marked deceleration as households struggle under the weight of record high debt servicing (Figure 1), elevated shelter costs and a more challenging labour market.

The economic slowdown will reinforce the downtrend in inflation, causing long bond yields, and ultimately longer-term rates on fixed rate loans, to drop further in 2024. In contrast, short yields should be anchored by the Bank of Canada’s decision to keep its overnight rate unchanged for another few months. But once the central bank is convinced that the inflation downtrend is sustainable, which we’re expecting to happen around mid-year, look for it to start cutting its overnight rate to boost a flagging economy.

Crops: Canola crushing set a first quarter record

Canada’s canola crushers set a record in the first quarter of the 2023/24 marketing year as new capacity came online (Figure 2). Canadian canola crush expansion was initially slated to add 4.5 million metric tonnes in 2024 however, rising construction costs, higher interest rates, and tight canola supplies the last several years have led to delays in projects. Increased canola crush may help swing acres to the crop, although the soybean to corn futures ratio will still be the global bellwether to understand trends in seeded acres. U.S. producers will have incentives to plant more soybeans at the expense of corn acres if the ratio stays at today’s level.

Cattle: North American cattle herd continues to shrink

The North American beef herd is going to be smaller on January 1, 2024, compared to a year earlier. Even strong prices have not been able to stem herd reductions as producers have dealt with droughts in 2 out of the last 3 summers, with heifers and cows accounting for 51 per cent of slaughter in 2023 (Figure 3). Provided 2024 provides bountiful rain for hay and pasture, rebuilding the herd will be a multiyear process as when looking back through time the high prices during 2015 and 2016 only resulted in herds staying flat.

Hogs: Canadian slaughter capacity in 2024

The USDA is expecting Canadian pork production to decline a further -1.2 per cent in 2024 as the world faces a current oversupply of pork. Producers around the world continue to be pressured on margins leading to herd reductions, including the world’s largest producer, China. Canadian producers are going to face tight margins until at least the summer although there has been increased demand for pork domestically as consumers are shifting consumption patterns to lower priced protein options.

Dairy: Lower feed costs to provide boost to profitability

With input costs stabilizing, dairy margins in 2024 should improve compared to the last few years with current estimates comparable to margins in 2019. Feed availability and pricing – which have been extremely volatile in the last three years – will be the ultimate determinant of profitability. A bountiful U.S. crop in 2023 sent corn futures tumbling to a three-year low. With corn being the market-maker in other feed grain markets, this put downward pressure on feed wheat and feed barley costs as well, even in western Canada where drought limited production. A +/- 10 per cent change in purchased feed costs can swing overall profitability by +/- 40 per cent. To get a sense where the price of corn is headed in 2024, producers will want to keep an eye on corn production estimates from South America and on prospective plantings of corn in the US this upcoming growing season.

Crop inputs: Fertilizer affordability to improve

Declining crop prices and elevated farm input prices notably fertilizer have been on the minds of Canadian farmers. Our fertilizer affordability index is a top chart to monitor. The ratio between fertilizer and crop prices is an indication for fertilizer affordability, calculated by the price of fertilizer divided by the crop price. It highlights the relationship between fertilizer prices and crop prices, or simply inputs and outputs.

Our fertilizer affordability index based upon the major crop rotations has improved for both canola-wheat and corn-soybeans due to weaker global fertilizer prices relative to crop prices. The lower the ratio, the more affordable fertilizer becomes relative to the crop. Overall, the fertilizer affordability trends indicate optimistic 2024-25 crop profitability. Nitrogen has shown improved affordability across most major crop commodities. Spring wheat and canola prices have held up the most relative to nitrogen prices contrasted to corn. The ratio of commodity prices relative to the price of phosphate is also expected to improve despite more upside potential for global phosphate prices in 2024. We will continue to monitor fertilizer affordability as spring planting approaches.

Farm equipment: High borrowing costs expected to weigh on sales

The farm equipment industry has faced supply chain issues for several years which impacted delivery of equipment from manufacturers. Reduced deliveries coupled with strong demand for farm equipment reduced inventory levels of both new and used farm equipment in 2022 and into 2023.

Supply chain issues are largely behind us and deliveries from manufacturers continue to arrive. As such, inventory levels are expected to increase in 2024. Rising inventory levels of new equipment will spill over to the used equipment market.

Inflationary pressures on new equipment prices along with higher borrowing costs are expected to slow farm equipment sales. Elevated interest rates have resulted in more caution as producers delay purchase decisions until interest rates stabilize or fall. Operations place a large focus on the cost per acre of equipment in relation to overall total costs on the farm.

–Written by Farm Credit Canada (FCC) senior economists Leigh Anderson, Graeme Crosbie and Justin Shepherd.

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The feed barley harvest is well underway in Alberta and Saskatchewan and lower feed grain prices contributed to the firm tone. Alberta packers were buying fed cattle on a dressed basis at an average price of $388-$390/cwt delivered, unchanged from seven days earlier. There is significant open demand for feeder cattle and feedlots have experienced favourable margins over the past couple of months. One couldn’t ask for a more favourable market environment for the feeder complex.

In central Alberta, larger-frame Simmental-based steers coming off pasture with full processing data weighing 920 lbs. dropped the gavel at $320. South of Edmonton, heifers with the same genetics including health records weighing a shade over 900 lbs. notched the charts at $305. Northwest of Winnipeg, Angus-based steers weighing 972 lbs. off grass sold for $332 and red steers weighing 816 lbs. reached a new high of $354. Strong buying interest was noted from Ontario and there’s a big corn crop in Eastern Canada. In southwestern Saskatchewan, black mixed steers weighing 820 lbs. were quoted at $338. In southern Alberta, tan heifers averaging 825 lbs. were valued at $320.

In Manitoba, a smaller group of red steers on the card at 740 lbs. moved through the ring at $339 and Charolais heifers averaging 730 lbs. traded at $307. In southern Alberta, short-weaned black steers weighing 630 lbs. set the bar at $360. Northwest of Winnipeg, red steers weighing in with scale reports at 600 lbs. reached up to $378. In the Calgary region, weaned mixed heifers off grass weighing 650 lbs. reportedly sold for $310. In the Lethbridge area, Charolais-blended steers weighing 515 lbs. were valued at $410.

Statistics Canada released its cattle inventory survey on Wednesday (Aug. 23). On cow-calf and backgrounding operations, heifers for slaughter and steers (one year and older) as of July 1 totalled 1.176 million head. This was up 58,800 head from July 1, 2022, and was a surprise to the trade. Western Canadian calves under one year old on cow-calf and backgrounding operations on July 1 were 2.711 million head. This was down 80,000 head from July 1, 2022, and down 235,600 head from July 1, 2021.

— Jerry Klassen is president and founder of Resilient Capital, specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204-504-8339 or via his website at ResilCapital.com.

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After the market closed, USDA reported that the U.S. beef cow herd dropped to 28.9 million head, its lowest level since 1962, after a severe drought that raised costs for livestock feed across the U.S. Plains.

“Even though feeder cattle prices are quite high, it’s the uncertainty around feed supply and drought conditions. It’s hard to make the investment, if you’re not sure how weather is going to play out or if you’re going to have the grass available to support those heifers,” said Alton Kalo, economist at Steiner Consulting Group.

Heifers retained for beef cow replacement fell to 5.16 million head, down six per cent from a year ago.

CME February live cattle firmed 0.1 cent/lb., to 158.85 cents/lb. (all figures US$).

The most-active April contract eased 0.325 cents to 163.025 cents/lb., after notching a life-of-contract high of 163.575 cents/lb.

CME March feeder cattle futures gained 2.225 cents to settle at 186.15 cents/lb.

Cattle slaughter was strong to start the week, with 127,000 head processed, up 4,000 head from the same period in 2022, USDA said.

U.S. lean hog futures eased on Tuesday, pressured by stronger supplies of market-ready hogs, Kalo said.

February lean hog futures eased 0.275 cent to 74.875 cents per lb, while most-active April hogs slipped 0.1 cent to 86.425 cents/lb.

“We continue to see more hogs come to market than people expected,” said Kalo.

Hog processors slaughtered 483,000 head on Tuesday, USDA said, up 5,000 head from the same period in 2022.

The CME’s Lean Hog Index, a two-day weighted average of cash hog prices, added seven cents, to $72.71/cwt.

— Reporting for Reuters by Christopher Walljasper in Chicago.

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Ranchers increasingly sent cows to slaughter last year, instead of keeping them to reproduce, as dry weather reduced the amount of pasture available for grazing in the western U.S. and on the Plains. At the same time, a tight labour market limited slaughtering at meatpacking plants.

Declining supplies of cattle are expected to keep meat prices high for consumers, analysts said.

“We’re going to be dealing with some sharp beef-supply declines for the next three years straight and therefore higher beef prices,” said Rich Nelson, chief strategist for commodity broker Allendale. “There will be no help in the coming years for the consumer.”

There were 28.9 million beef cows as of Jan. 1, down 3.6 per cent from a year earlier, USDA said. It was the smallest herd size for that date in 61 years, according to U.S. government data.

Overall the total number of cattle and calves across the country fell three per cent from a year ago to 89.3 million, the lowest since 2015, government data show.

A significant shift toward wetter weather will be needed to break the trend of liquidating cow herds, Rabobank said. Last year, nearly 13.4 per cent of the cow herd was culled — a record, according to the firm.

Cattle producers will not make “meaningful progress” in rebuilding the U.S. herd until 2025 at the earliest, Rabobank said. Meanwhile, restaurants, retailers and importers will increasingly compete for limited supplies of U.S. beef, the firm added.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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While some auction crowds were caught up with the negative news coverage, other auction barns appeared to shrug off coronavirus fears. Sellers don’t appear to be altering their marketing schedules. Some cow-calf producers may be selling earlier than expected on ideas the epidemic will get worse. This behaviour may be offsetting those producers holding back on sales in hopes of an improvement.

Feedlot margins continue to erode with losses exceeding $200 per head in many cases and probably won’t see an improvement over the next couple of months. Short-keep cattle weighing above 900 lbs. were taking it on the chin while 800- to 900-lb. yearlings experienced limited slippage. In central Alberta, light barley ration Simmental-blended steers weighing 950 lbs. were quoted at $163; medium-flesh red mixed steers averaging 830 lbs. were quoted at 178. Heifers were all over the map, with buyers focusing on flesh levels and frame characteristics. In southern Alberta, Angus-blended heifers with medium to lower flesh weighing just under 900 lbs. were quoted at $155 while similar quality 840-lb. heifers were valued at $162. In central Saskatchewan, Charolais-based steers weighing 895 lbs. were valued at $175 and in Manitoba, steers averaging 900 lbs. traded in the $151-$155 range. The yearling market took a severe beating in Manitoba last week.

Demand for grassers was very strong last week, with the calf market recouping losses from earlier in February. The market may have felt sluggish early in the week. By Friday, there was no doubt that merchants were focused on calves with “just get ’em” type orders surfacing. In central Alberta, pre-conditioned mixed steers weighing 622 lbs. were quoted at $226 and red-white-face steers averaging 530 lbs. were reported at $241. In east-central Saskatchewan, black steers weighing 600 lbs. reached up to $230.

Cattle inventory reports from the U.S. Department of Agriculture and Statistics Canada both showed a year-over-year decline in the 2019 calf crops. We’ll probably see a marginal drop again in 2020 given the number of beef cows and retention heifers. Buyers are counting on this coronavirus pandemic to be history come fall.

— Jerry Klassen manages the Canadian office of Swiss-based grain trader GAP SA Grains and Produits Ltd. and is president and founder of Resilient Capital, specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204-504-8339 or via his website at ResilCapital.com.

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Noticeable weakness was evident in yearling prices, while grass cattle experienced limited slippage. Backgrounding operators are starting to liquidate fall-placed calves. Quality was quite variable, with fleshier cattle experiencing sharper discounts. Demand is limited for these heavier replacements, with Alberta and Saskatchewan feedlot inventories 20 per cent above the five-year average. June live cattle futures fell by $4.45 for the week and buyers were quick to adjust their bids each day. Alberta packers were taking fed cattle in the range of $157-$158, down from the highs of $165 earlier in January. Nearby feeding margins have stumbled into negative territory which also contributed to the softer tone.

In central Alberta, larger-frame medium-flesh tan steers averaging 855 lbs. were valued at $189 while similar quality 900-pounders brought back $187. Simmental mixed medium- to larger-frame heifers with heavier butter levels averaging 825-850 lbs. were quoted at $173 in the same region. A small group of mixed steers with fleshier characteristics weighing 880 lbs. were quoted at $175 in southern Alberta. In central Saskatchewan, fleshier Charolais blended steers weighing just over 900 lbs. were quoted at $176 while a group of red and tan heifers with medium flesh at 860 lbs. were reported at $172.

Calves were quite variable across the Prairies. Buyers shopping for grassers were the dominant feature while feedlot demand appeared to take second billing this week. In Manitoba, black steers weighing 660 lbs. were valued at $203 while similar-quality 540-pounders were quoted at $225. In southern Saskatchewan, 525-lb. Charolais blended steers reportedly sold for $233 while red and white face heifers weighing 565 lbs. were reported at $198. Temperatures and pen conditions have improved in most regions. Southern Alberta experienced severe wind at times, which can be just as harsh as extreme temperatures.

The U.S. Department of Agriculture’s biannual cattle inventory report, released Friday, pegged the 2019 calf crop at 36.06 million head, down 250,000 head from the 2018 output. Yearling values this fall have potential to be quite strong as this is the first contraction in the calf crop since aggressive expansion started in 2016.

— Jerry Klassen manages the Canadian office of Swiss-based grain trader GAP SA Grains and Produits Ltd. and is president and founder of Resilient Capital, specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204-504-8339 or via his website at ResilCapital.com.

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The market was quite variable across the Prairies. Demand from south of the border evaporated due to adverse weather while southern Alberta experienced favourable spring conditions. Alberta packers were buying fed cattle at $260 on a dressed basis, up $2-$4 from seven days earlier. Feedlot margins have improved but remain in negative territory by $20-$40 per head. Larger supplies of backgrounded yearlings are coming on the market at this time of year. Feedlots continue to exhibit a cautious tone because feed grain prices are strengthening in the short term and fed cattle prices for the third quarter are expected to be quite weak.

In central Alberta, black Angus blended steers with medium to lower flesh levels weighing 910 lbs. sold for $168; exotic-based mixed heifers weighing 910 lbs. with very little butter sold for $161. Near Lethbridge, a small group of black medium- to lower-flesh heifers averaging just over 900 lbs. dropped the gavel at $158. In southern Manitoba, reports had Simmental steers weighing 820 lbs. selling for $177 while Charolais blended heifers weighing 845 lbs. were valued at $154.

Stronger buying interest for calves from backgrounding operators and finishing feedlots kept prices in the light and mid-weight categories well supported. These buyers are looking at April 2020 live cattle futures which closed over $122 on Friday. Secondly, there is a high probability that feed barley will be $40-$50 cheaper come harvest.

In southern Alberta, a larger group of black steers weighing 715 lbs. sold for $203 and red heifers weighing 695 lbs. were quoted at $183. In southern Manitoba, Charolais blended steers weighing around 550 lbs. were valued at $238 while tan mixed heifers averaging 525 lbs. were quoted at $199.

There were no significant year-over-year changes on the Statistics Canada cattle inventory report. The 2018 calf crop was estimated at 4.297 million head, down from 4.358 million head in 2017; however, U.S. feeder cattle outside feedlots on Jan. 1, 2019 were at 26.38 million head, up 255,000 head from year-ago levels. The industry is looking for a surge in U.S. feedlot placements over the next eight weeks as feeder cattle move off small-grain pasture. This could cause downward pressure on Canadian yearling prices.

— Jerry Klassen manages the Canadian office of Swiss-based grain trader GAP SA Grains and Produits Ltd. and is president and founder of Resilient Capital, specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204-504-8339.

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“Tariff concerns remain and there are fears that we are going to back pork up into the domestic market,” said Don Roose, president of Iowa-based brokerage U.S. Commodities.

Live cattle futures closed firmed on a round of short-covering. The front-month contract hit its highest since June 29.

Traders said expectations for higher cash prices fueled the bounce in cattle futures as packers were expected to increase their buying to make up for shortfalls in cash deals last week.

Most active CME October hogs settled down 0.275 cent at 51.925 cents/lb. while August hogs fell 0.7 cent to 67.2 cents, closing just above its contract low of 67.1 cents (all figures US$).

CME August live cattle closed Wednesday up 2.525 cents at 108.95 cents/lb. CME October live cattle rose 2.15 cents to 110.65 cents.

CME August feeder cattle futures settled up 3.275 cents at 154.55 cents/lb. and September feeders rose 3.15 cents, to 154.85 cents.

Livestock traders are awaiting direction from two big U.S. Department of Agriculture reports due Friday, including the government’s monthly Cattle on Feed report and its semiannual cattle inventory report.

— Mark Weinraub is a Reuters commodities correspondent in Chicago.

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Major markets in Alberta traded steady to as much as $5 higher, while Saskatchewan and Manitoba prices were quoted $3 higher to as much as $5 lower. Major finishing operations in Alberta focused on local cattle due to extremely cold temperatures. Buyers were hesitant to ship cattle farther distances and these cattle will need extra work and time to adjust to new surroundings. Early backgrounded yearlings are coming on stream and the sharp eye was quick to discount fleshier-looking replacements. Pushing these calves too hard over the winter can have serious price consequences. Ontario feedlots have backed away for the time being, resulting in a vacuum of demand, and feeder cattle exports have dropped down to a trickle.

A smaller group of medium-frame tan steers weighing just over 850 lbs. were quoted at $177 in east-central Saskatchewan; smaller, fleshier groups were trading below average levels as buyers picked away to build up a load. Similar-weight and -quality steers were quoted from $180 to $183 in central Alberta. Mid-weight categories appeared to hold value. Medium- to larger-frame steers with medium-flesh smoky steers averaging 750 lbs. were quoted at $187 in southern Alberta.

The U.S. Department of Agriculture’s cattle inventory report was considered constructive for the feeder market, with noticeable buying interest surfacing on calves and grassers. The number of feeder cattle outside of feedlots as of Jan. 1 was slightly below year-ago levels despite the year-over-year increase in the U.S. calf crop. Strength in the deferred feeder cattle futures late last week quickly spilled over into Western Canada. In central Alberta, mixed red steers averaging 550 lbs. were quoted at $237 while 500-lb. similar-quality bawlers were as high as $255.

Rising interest rates, along with a major selloff in the stock market, have painted all commodities with the same brush for the time being. There’s a positive sentiment from a fundamental perspective; however, buyers tend to lack confidence when financial markets experience severe volatility.

— Jerry Klassen manages the Canadian office of Swiss-based grain trader GAP SA Grains and Produits Ltd. and is president and founder of Resilient Capital, specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204-504-8339.

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