Feedlots Lose Leverage to End 2023: Canfax cattle market update

Fed cattle were under pressure to end 2023 in both Alberta and Ontario. The nearby Live Cattle futures moved around USD $20/cwt lower over a period of five weeks in November and December, hitting a low near USD $163/cwt in the first week of December, and turned feedlot margins negative in the process.

Feedlot managers responded by reducing their cash offerings, opting instead to keep cattle on feed for additional days in the hopes that fed cattle prices on the cash market would rebound. These additional days on feed combined with nearly optimal pen conditions in November and December increased fed carcass weights, especially in the west. Packers required fewer animals to keep harvest lines moving. Heavier carcasses that needed to be marketed forced the cattle feeders’ hand, and feedlot managers gave up leverage when these heavier cattle were finally marketed.

Front-end supplies in the U.S. (on feed 120+ days) as of December 1 were 7 per cent higher than 2022 and 6 per cent higher than the five-year average for December; and are also the largest December inventory going back to 2014. Comparatively, front-end feedlot supplies (on feed 120+ days) in Alberta and Saskatchewan feedlots on December 1 were 6 per cent lower than December 1, 2022, but were a substantial 29 per cent higher than the five-year average for December. Ample front-end supplies will continue to impact feedlot leverage through the first quarter of 2024 as these larger volumes are worked through. U.S. packer margins are estimated to be negative to begin 2024 and are not expected to encourage additional shifts to work through these elevated volumes.

Alberta fed steers averaged $222/cwt in December, moving four per cent lower from November, but are 20 per cent higher than December 2022. The five-year average suggested a 4 per cent price pop from November to December was in the cards, but factors previously mentioned eliminated any potential year-end ramp up in prices. Alberta fed steer prices (live) were at a $5/cwt discount to Ontario and a $7/cwt discount against the U.S.

Record-heavy steer carcass weights were reported in the west in December, with packing plants applying heavy-weight discounts on carcasses over 1,050-1,000 pounds depending on the packer. Heavier carcasses have also resulted in an increase in Yield Grade 4 and 5 carcasses; those with additional fat that require extra trimming; discounts have been noted for carcasses grading either YG4 or YG5.

The Canfax Trends reports estimated that feedlot margins in 2023 (assuming no risk management) had an annual average in the black for all six classes of cattle, ranging from $68-142/head. However, this dropped to be $66-196/head in the red for the month of December.

The U.S. Choice cutout averaged $299/cwt in 2023, 13 per cent higher than 2022 and 23 per cent higher than the five-year average. Strong demand in the first half of the year rallied cutout values higher. Demand headwinds during the second half of the year pressured cutout values lower.

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This article was first published in Volume 4 Issue 1 of ABP Magazine (February 2024). Watch for more digital content from the magazine on ABP Daily.