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Klassen: Narrow margins weigh on feeder market

Western Canadian feeder cattle prices were under pressure the week ending Sept. 19, trading $5 to as much as $10 lower compared to seven days earlier. Negative feeding margins along with a major selloff in live cattle futures destroyed the buying enthusiasm that was evident earlier in August.

Feedlot operators appeared to be in disarray, shying away at the higher price levels while heavily discounting fleshier cattle. The Canadian market was on stilts, but followed U.S. prices which fell like a lead balloon by US$15-$20. Order buyers who were expecting to be busy were on the sidelines feeling left out. However, there were no large bidders carrying the market, so these downtrodden faces came to life realizing their “back pocket” orders were actually dropping the gavel. Then phoning the feedlot owner that he was receiving a couple of loads of feeders felt like delivering a winners’ curse. Heavier feeders took the blunt of the force, with 925-lb. mixed steers trading at $248 in east-central Alberta. (The previous week I quoted similar cattle at $262).

The calf market was also grinding lower similar to the drawn-out political debate. Prices were quite variable across the Prairies, with eastern markets reflecting a slight premium. Simmental-cross steers averaging 575 lbs. sold for $286 in central Alberta; similar-weight cattle in southern Saskatchewan traded in the range of $288 to $295. Longer-keep cattle appear to have more risk with the June live cattle futures trading at a US$8 discount to the December contract.

Breakeven values on pen closeouts in Alberta were near $190 while local packers were buying fed cattle in the range of $180 to $182. Feedlots have been carrying seasonally low numbers or were relatively empty through the summer months so this does not offset the equity buildup over the past year. However, breakeven values on 850-lb. steers coming into the feedlot that week were near $200 for next January. At the same time, U.S. feedlots are currently in red ink by nearly US$300 per head and Sept. 1 cattle on feed inventories were three per cent above year-ago levels. U.S. wholesale choice beef prices closed last week at US$236/cwt, compared to US$246 last year at this time. The supply contraction in the meat sector appears to have come to an end.

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.

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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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