Klassen: Fed cattle prices continue to support feeder market

Strength in fed cattle prices in Alberta reached up to an astonishing $148.50 per hundredweight (cwt) last week, which spilt over into the feeder complex. Larger volumes of heavier feeder cattle are coming on the market, with backgrounding operations liquidating fall-placed calves, but this did little to stem the upward momentum.

Overall, feeder cattle were extremely volatile, selling $5-$15/cwt higher depending on location relative to seven days earlier. Non-feature 850-pound mixed steers sold for $164/cwt off the backgrounding lot in southern Alberta. By the end of the week, black Angus-based steers weighing just over 750 lbs. were quoted at $180/cwt landed in a Lethbridge-area feedlot.

Alberta pen closeout prices for fed cattle are approximately $25/cwt above break-even prices with margins nearing record highs. Most cattle feeders have been in the business long enough to know this will not last and coffee shop chatter suggests larger operations are pulling in the reins on replacement cattle purchases. I watch the smart money (which is not me) — and when these gentlemen say prices are too high, the prices are too high. A little jump in cash barley, from $152 to $156 delivered Lethbridge, along with weaker beef wholesale prices, causes a defensive tone amongst large-scale operators. These cattle feeders don’t want to be squeezed during the summer with June live cattle futures trading at a $9 discount to the April contract.

The weaker Canadian dollar continues to underpin all sectors of the Canadian cattle market with the interest rate spread widening between Canada and the U.S. The Federal Reserve once again confirmed the easing of its bond buying program with positive U.S. gross domestic product (GDP) data coming forward. The Canadian dollar will correct over time by trading sideways or correct with a small bounce; however, I’m looking for steady selling of the Canadian dollar against the greenback over the next couple of months.

I’ve actually received a few calls from grain farmers (who have never fed cattle) asking if this is the time to place feeders in a custom feedlot. I guess it has been a long cold winter and with limited grain movement, farmers are looking for opportunities. This is a sure sign that the highs are near for feeder cattle. Don’t get caught up in the hype that the industry is running out of cattle, for the average consumer doesn’t care about inventory reports but rather switches to another protein product.

– Jerry Klassen is a commodity market analyst in Winnipeg and maintains an interest in the family feedlot in southern Alberta. He writes an in-depth biweekly commentary, Canadian Feedlot and Cattle Market Analysis, for feedlot operators in Canada. He can be reached by email at [email protected] for questions or comments.

About the author

Contributor

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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