A View of the Industry

by Deb McMillin

Fall Fed Cattle Basis Widens
The current negative moves in the North American fed market and the currency changes have widened the basis levels significantly when compared to earlier in 2008 and in 2007.

A stronger Canada to US basis seemed to be the trend through the start of 2008 as there was a tight supply of market ready fed cattle and few outside factors pulling the market. Since September the basis shift has been large, moving to much wider basis levels than were seen a year ago. While supplies in North America remain tight it has been the global economic situation that has influenced prices in both countries. In addition Canada is struggling with COOL, costs associated have yet to be determined by packers in the US as well some issues remain about proper label wording and Canadian slaughter protocols. Fortunately for the Canadian industry the drop in the Canadian dollar has absorbed some of the price differential between the two countries. The timely part of the Canadian dollar decrease is that given a scenario where all external factors were equal but the dollar stayed at levels seen in September ($0.95USD) the fed cattle price would be significantly lower. Looking back, January to September 2008 the basis average of a month-month comparison was more than $4.50/cwt narrower than the same months in 2007. The average in October was -15.36/cwt under the US cash market, which was 5.00/cwt wider than in 2007. As of the third week of November the basis has once again widened, the difference between the cash markets in Alberta and Nebraska was -21.20/cwt based on the Canfax averages.

In pre-BSE years, the trend towards the end of the year would be to see the basis tighten, however historical trends will not mean much as Canada now has additional issues such as COOL to deal with.

Cow Numbers Large Through Fall Run
Despite exports of fed and feeder cattle being significantly smaller since the implementation of COOL, the exports of non-fed cattle remain large. To date in 2008 the cow export total is 133,700 head. In addition the cow slaughter nationwide is up 4% to date over last years total at this time. If the increase of exports continues and slaughter numbers remain large to the end of the year, 2008 will have the largest cow marketing seen in over a decade.

Although there has been a large number of cull cows offered for sale recently the typical seasonal decline in the Western Canadian D1,2 Cow prices has not been as sharp as it could have been given the volume increase. This was in part due to strong demand for trim and grinding products across North America as well as the lower dollar. A seasonal reduction in prices resulted in the October Western Canadian D1,2 cow price at $43.61/cwt which is more than $10.50/cwt higher than the same month in 2007. The third week in November saw the price range from $32.40/cwt to $48.00/cwt with an average of just under $41.00/cwt.