Klassen: Feeder market grinds lower

'Is there no grain in this country?'

Compared to last week, prices for western Canadian yearlings weighing over 900 lbs. were down $4-$8 on average; yearlings weighing between 800-900 lbs. were down $2-$4; calves under 800 lbs. were down $8-$12, with the exception of Manitoba, where lighter calves traded $3-$5 below week-ago levels.

Feedlot operators are asking, is there no grain in this country? The cost per pound gain is up 30-50 cents a pound from mid-August, which is coming directly off the feeder price. The feeder market took a beating as barley prices jumped $10-$20 per tonne over the past seven days.

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Buyers are in a very precarious position. Feedlot inventories are running 17 per cent above the five-year average and margins remain deep in red ink on unhedged cattle in the deferred positions. Old Man Winter settled into most corners of the Prairies, which contributed to the softer tone. Buyers were somewhat more aggressive on calves with health programs but those calves coming just off their moms were heavily discounted. Yearlings are also fleshier at this time of year and buyers have become extremely finicky on quality features. April live cattle futures have dropped $9 from the September highs, which is the second hammer to fall on the feeder market.

In southern Alberta, larger-frame medium-flesh Angus-blended steers averaging 855 lbs. were valued at $187 delivered to the feedlot and Charolais-based heifers with medium flesh averaging 875 lbs. were quoted at $161 in the same region. In Manitoba, larger-frame tan steers with medium to heavier flesh weighing just over 940 lbs. were reported at $167 and similar-quality heifers averaging 920 lbs. were valued at $154.

A larger group of exotic calves averaging 550 lbs. were valued at $197 and Simmental-based steers weighing 525 lbs. were quoted at $196 in central Alberta. In southern Manitoba, Charolais-based steers weighing 540 lbs. were valued at $220 and Hereford-based heifers averaging 530 lbs. were quoted at $180. In central Saskatchewan, tan mixed steers weighing 710 lbs. were valued at $192 and similar-quality 720-lb. heifers were quoted at $164.

The feeder market is expected to remain under pressure over the next month. The trade is anticipating a historically tight barley carryout this year, which will keep barley at the higher levels. There is a fair amount of uncertainty in the fed cattle market, given the rise in COVID-19 cases in Canada and the U.S. Beef production during the first quarter of 2020 may be larger than anticipated, given the larger placements on the U.S. Department of Agriculture’s recent Cattle on Feed report.

— 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 or via his website at ResilCapital.com.

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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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