Klassen: Higher corn values weigh on feeder cattle

Feeder cattle prices in Western Canada were uneven over the past week, with certain locations showing $1 to $2 higher while others were $1 to $2 lower. Very little activity was noted in Manitoba and Saskatchewan and with the lighter volume it was difficult to get a handle on the actual price structure.

U.S. markets reflected a similar discrepancy, with good demand stepping forward for lighter calves, but buyers tended to be cautious with the heavier feeders. Stronger corn prices set a softer tone to the 7- and 8-weight cattle as feedyards were realizing higher costs per pound gain.

Feeder cattle futures came under pressure late in the week as CBOT (Chicago Board of Trade) December corn reached over $4 per bushel. This also spilled over into Western Canada as barley prices edged higher. Fed cattle were also down $1 to $2, so the feedyard margin was taking a hit on both sides; the recent changes in feed grains and fed cattle would usually result in a $2 to $4 decrease in feeder cattle prices, so the market held up surprisingly well considering the overall environment.

If you want to be successful in the cattle market, you need to have a global perspective, and we’ve seen how drought like conditions in Russia and the heat wave in Europe can drive up local feed grain costs. Feeder cattle futures are near historical highs for the second time this year, but the market tends to be struggling at these historical high levels. The cow slaughter continues to come in larger than expected and it would not surprise me to see further decreases in the 2010 calf crop and cow herd on the U.S. Department of Agriculture’s January inventory report. Lower feeder cattle supplies will prevent the market from falling apart, despite the stronger corn and barley prices

In the short term, look for the upcoming U.S. corn harvest to provide some temporary pressure to the feed grains complex and allow cow-calf producers to take advantage of these higher calf prices.

— 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] 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.

Jerry Klassen's recent articles

explore

Stories from our other publications