Klassen: Feeder cattle comfortable near historical highs

Feeder cattle in Western Canada held value last week despite the Canadian dollar dipping to 12-week lows. Demand for grass cattle has subsided as many farmers are preparing to start seeding. Secondly, there is a fair amount of uncertainty in the world and feedlot operators chose to sit on their hands last week.

The media has bombarded the average cattle buyer with negative news. European financial fears, a huge drop in the Dow Jones, the oil spill in the U.S. Gulf and slower airline traffic due to the Icelandic volcano all contributed to fears that the bottom would somehow fall out of the cattle market. Cattle futures were remarkably resilient closing near the highs of the week.

Feeder cattle exports are expected to remain strong into May. U.S. buyers are realizing tighter supplies of all weight categories and many U.S. ranchers have been pulling cattle forward to take advantage of the current prices. This supports the market longer-term, but the key factor will be if live cattle futures make new highs later in spring or summer. We need to see stronger live cattle prices in order to justify further upside in the feeder market.

Wholesale beef prices are at their highest levels since 2008 and the market is contending with a seasonal increase in demand. Positive feedlot margins and steady fed cattle prices should continue to support the feeder complex.

To reiterate from last week, feeder cattle futures are near historical highs. It may be prudent to take some protection on fall marketings. Cow/calf producers would be kicking themselves if the market did fell apart and they didn’t do anything given the current opportunity. If it is one lesson we have learned in the past is to “expect the unexpected.”

Table 1. Feeder steers for week ending May 7, US$/cwt.

Weight range (lbs.) Alta. Sask. Man. Neb. Kan.
500-600 122 119 119 132 130
600-700 114 114 111 126 123
700-800 105 105 103 118 116

— 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 called Canadian Feedlot and Cattle Market Analysis for feedlot operators in Western Canada. He can be reached by email at [email protected] or 204-287-8268 for questions or comments.

The material contained herein is for information purposes only and is not to be construed as an offer for the sale or purchase of securities, options and/or futures or futures options contracts. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. The risk of loss in futures trading can be substantial. The article is an opinion only and may not be accurate about market direction in the future. Do not use this information to make buying or selling decision because adverse consequences may occur. This information may be wrong and may not be correct about current market conditions in all areas of Canada. This is an opinion only and not based on verified facts.

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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