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Published: 5 days ago
Beef Cattle, Cattleman’s Corner, Markets
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Throughout the fall, I received many inquiries from cow-calf producers regarding herd expansion.
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During the latter half of November, good bred cows and higher-quality bred heifers were trading in the range of $1,800-$2,200 in central and southern Alberta. Younger cow-calf pairs were selling in the range of $1,600-$2,100 in the same regions.
With current prices for females, producers are wondering if it’s reasonable to think about expanding their herd at this time in the cattle cycle.
Steer calves weighing around 500 pounds were readily trading in the range of $280 to as high as $300/cwt, which equates to $1,400-$1,500 per head. In finance, any asset is worth the present value of its future earnings.
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The ranchers I talked to this fall suggest that this was the first year in a long time that they actual turned a healthy profit. Margins have been in break-even or negative territory for the cow-calf producer since 2016. Feed and forage have been in short supply for a few years, especially in Manitoba and Saskatchewan. Ranchers need calf prices to remain at the current levels for at least three to four years to justify the expansion. Producers are wondering if prices will stay at the current levels long enough to justify a reasonable return on investment.
So let’s look at the fundamentals as well as a price outlook for the next couple of years.
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The U.S. beef cow slaughter is projected to reach up to 3.900 million head, up from the 2021 processed number of 3.631 million head. This is the highest beef cow slaughter since 2011. For 2023, the feeder market needs to trade high enough to encourage expansion. For the next three years, U.S. cow-calf producers are expected to reduce the cow slaughter and increase heifer retention.
Bred cows, bred heifers and cow-calf pairs are expected to increase in price over the next 12 months. We could see bred cows and bred heifers double in price. The value of cow-calf pairs will likely double as well, and may even increase further given the bullish outlook for feeder cattle.
Western Canadian weather tends to move in 18-year patterns. Forage and pasture conditions are expected to be average to above average throughout 2023. Drier conditions are expected across Prairies during the summers of 2024 and 2025. Make a note of this to keep on the fridge so you can plan accordingly.
The U.S. calf crop has declined every year since 2019. The 2022 crop is expected to finish near 34.3 million head, down from the 2021 calf output of 35.085 million. During 2023, the calf crop is expected to drop to 33.8 million head. While the U.S. calf crop is shrinking, the Canadian calf crop is expected to hover between 4.3 and 4.4 million head from 2022 through to 2024. Canadian supplies will remain relatively flat but the U.S. calf crop will contract. This will result in higher feeder cattle prices.
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In Western Canada, there has been significant expansion in bunk capacity over the past couple of years. The Canadian calf crop will remain the same but domestic demand is increasing due to the bunk expansion in Alberta. The Canadian feeder market will need to maintain a premium over U.S. values to curb export movement. This comes when the U.S. calf crop is nearing 2014 lows.
The feed grain component will influence the price structure for feeders but this is a secondary factor. The dominant factor driving value is the price of the animal when finished. As of mid-December 2022, the April 2023 live cattle futures were trading just over $157. However, the April 2024 live cattle futures were above $167. Using a normal basis, Alberta fed cattle prices in the spring of 2024 could reach up to $222 to $225.
This past fall, steer calves weighing 500 pounds were trading in the range of $280-$300/cwt. During the fall of 2023, steers of this weight are expected to trade in the range of $340 to as high as $360. Looking at past price behaviour, margins should remain profitable for the cow-calf producer through the first half of 2025. This is when we will see the first calves from the U.S. expansion come on the market.
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It appears cow-calf producers likely have two additional years of profitable margins. Price direction beyond 2025 will be determined by the pace of U.S. herd expansion. If U.S. producers only start major heifer retention in 2024, this would prolong the profitable period by one more year.
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Columnist
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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Cow-calf producers have opportunity for expansion – Grainews
