Klassen: Live cattle futures lead feeder market higher

Western Canadian feeder cattle prices continued to climb last week for the second week in a row, as feedlot buying interest absorbed larger available supplies. Calves over 600 lbs. and yearlings were $3-$6 above week-ago levels on average while calves under 600 lbs. traded $5-$10 higher. Weakness in the Canadian dollar enhanced demand from south of the border on all weight categories in Manitoba and eastern Saskatchewan. The U.S. calf market was trading $5-$10 above week-ago levels, which spilled over into Western Canada. Backgrounding operators were more aggressive on calves now that the grain harvest has wrapped up and most fall work is completed.

More importantly, strength in the deferred live cattle futures set a positive tone, and feeding margins have recovered from earlier in the month. Pen closeout breakeven values are near $190, while Alberta packers were showing bids in the range of $165-$169 this past week. We’ve seen a slight resumption in fed cattle exports to the U.S., which has partially alleviated the backlog in feedlots.

In central Alberta, larger-frame medium-flesh mixed steers weighing 800-840 lbs. traded from $245 to $253; fancier heifers of similar weight and quality were quoted from $238 to $245. In the Lethbridge area, Charolais-cross lower-flesh steers averaging just over 650 lbs. were quoted at $268 and mixed heifers averaging 650 lbs. trading at a $18-$21 discount. There were noted premiums above the average on quality feature cattle, sometimes up to $15, but this was not the norm. In south-central Saskatchewan, mixed-quality medium-frame steers averaging 500-525 lbs. traded from $320 to $325.

The U.S. Department of Agriculture’s cold storage report showed beef supplies up six per cent from last month and up 31 per cent from last year. This is not surprising given packers’ delay in picking up cattle, but improving retail and restaurant demand should help absorb these larger stocks. Wholesale choice beef product increased to US$216/cwt, up $5/cwt from last week but down from $250/cwt last year.

The strength in April live cattle futures ($20 off the recent lows) along with the weaker exchange has been the main driver of the feeder market. The live cattle futures market is nearing the 50 per cent retracement (December 2014 high to September 2015 low) so I’m skeptical how much further this market can climb. Feeder cattle are expected to trade sideways over the next couple of weeks.

Jerry Klassen is manager of the Canadian office for Swiss-based grain trader GAP SA Grains and Produits. He is also president and founder of Resilient Capital, which specializes in proprietary commodity futures trading and commodity market analysis. Jerry owns farmland in Manitoba and Saskatchewan but grew up on a mixed farm/feedlot operation in southern Alberta, which keeps him close to the grassroots level of grain and cattle production. Jerry is a graduate of the University of Alberta. He can be reached at 204-504-8339.

About the author


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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