It may just be the story we look back on for cattle markets in 2019 – both the United States and Canada have produced more beef, while at the same time, wholesale prices remain high.
“That is a good news story. I don’t think we better get complacent though,” says Gateway Livestock Exchange’s Anne Wasko, pointing to global economic condition forecasts into the end of this year and beginning of next.
In this Beef Market Update, Wasko provides updates on cash prices and futures markets, as well as discussing the latest U.S. Cattle-on-Feed Report, and what’s pressuring a margin squeeze for primary producers.
Cash prices country dependent
Cash prices are strongly dependent on regions, this week, with the southern U.S. seeing trades a couple dollars higher, while basis widens with Alberta likely to lose $1 to $2 in fat cattle averages.
U.S. data is backing up a continued high demand on Choice beef, as well, with the Choice-Select spread sitting around $25, says Wasko, where a year ago, the spread would have been around $15.
“That wholesale price continues to move higher after making its bottom there a few weeks ago. So it’s up about $6 on the Choice this week.”
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Looking to December futures
While the last 30 days have seen some increases in December futures for live cattle, we’re trading lower than the five-year-average.
“When you go back and look at that five year average, that’s going to include those exceptionally high years, especially the blow-off year…so you’ve got that impacting that average, and looking forward…big production this year, bigger production next year. So that’s what’s factored into these markets, or that’s what the futures is looking at.”
But, Wasko says the pleasant surprise this year has been that we’ve been able to out-maneuver what the futures markets have been telling us.
No big surprises in U.S. Cattle on Feed Report
Overall there were no big surprises in the USDA’s latest Cattle on Feed Report.
“The numbers came off very close to pre-report expectations,” says Wasko. “But I think a couple things looking forward – so on-feed numbers were one per cent lower than this time last year; good marketings continue to move through the system; placements still down from where they have been or were expected to be…”
Wasko says we might expect to see the next two cattle on-feed reports with bigger placements.
Expenditures pressuring margin squeeze
While some weight classes are seeing a bit of pressure, prices are similar to last year, says Wasko, adding costs are coming from several directions.
“That’s where that margin squeeze is coming from. It’s not coming from a loss on the revenue side, it’s coming from a squeeze on the expenditure side.”