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Klassen: Lower feed grains support feeder cattle market

Western Canadian feeder prices were very uneven last week, depending on the region. Barley prices continue to grind lower while feeding margins hover near break-even on current pen closeouts; both factors are the main influences underpinning the feeder market heading into the main fall run.

U.S. feeder markets continue to trade near historical highs, which is also supporting values in Western Canada. The industry is expecting larger volumes of yearlings over the next week, now that drier conditions have caused pastures to deteriorate. However, there is plentiful forage available and cow-calf producers are waiting for higher values at local auction markets, because they regularly hear of stronger prices from U.S. market reports.

Alberta packers bought fed cattle in the range of $118 to $120 per hundredweight (cwt) last week, which is about $2/cwt above break-even for many feedlots. In the Edmonton area, a mixed group of steers with no special features averaging 780 pounds sold for $148/cwt; top-quality silver steers averaging just over 850 lbs. sold for $146/cwt, landed in the Lethbridge area. Quality replacement cattle are trading at a premium, but overall, prices were similar to seven days earlier on average.

Statistics Canada estimated the barley crop at 8.8 million tonnes, but the grain trade anticipates a crop size close to 9.4 million tonnes. The function of the barley market is to encourage offshore movement through lower values, which should cause feeder cattle to ratchet higher. The feed grains complex has yet to digest the larger U.S. corn crop, which will come on market a couple of weeks later than normal. Southern Alberta barley at $200 per tonne feels heavy, given world export feed grain prices.

The fed market is contending with sluggish wholesale beef values and a seasonal decline in consumer spending. Unlike past years, feedlot managers are waiting for higher fed cattle prices to materialize before bidding up replacement cattle.

The eternal hope of positive margins is not realistic, given the equity erosion during the last 12 months. The industry needs the feedlot sector to experience a longer period of healthy margins in order to justify a significant shift in the demand equation.

— 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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