Klassen: Upward momentum supports feeder cattle market

Newton’s first law of motion continues to describe the cattle market, as an object in motion tends to stay in motion until acted upon by another force. Last year is a distant memory for most cattle producers as ownership becomes a key feature and no eye blinks at paying $196 per hundredweight (cwt) for non-feature steers weighing 580 pounds in central Alberta.

Of course this looks like a “good” buy when the U.S. Department of Agriculture reports that top-quality 555-lb. steers sold at $225 in Nebraska. Cattle prices have entered new territory and surveying the landscape renews optimism we haven’t seen for years. Alberta fed cattle prices reached up to $140/cwt, which is about $16/cwt above break-even pen closeout prices. Feed barley and feed wheat continue to trade at $152 per tonne and most feedlots are receiving fresh calls daily from farmers coming to realization of grain movement in Canada. It’s been a long winter for some, but not long enough for others in the cattle business.

A larger group of larger-frame black steers weighing around 550 lbs. sold for an astronomical $200/cwt in east-central Alberta. Charolais-cross steers weighing just over 700 lbs. were quoted at $178/cwt in southern Alberta. Similar cattle weighing 800 lbs. were quoted at $163/cwt landed in the Lethbridge area. Backgrounded calves are starting to come on the market and feedlots are fairly current with numbers. The market has firm demand at the current levels, with some breathing room depending on the fed prices over the next month.

The spread between April and June live cattle futures has widened; the futures market is telling producers to sell now. This recent price action is quite difficult to sustain and consumers have not been tested for a significant time frame to adjust buying behaviour. U.S. grocers actually advertised lower prices from last week, which is hard to imagine with wholesale prices at record highs. It appears as though someone didn’t visit the local auction barn before setting prices in the national grocery chain. Look for feeder cattle to trade sideways, but expect more volatility at the higher price levels.

I’ve received a few calls from producers in regards to buying cows. The cow market hasn’t adjusted to the price structure of feeders over the past four months and I feel there is further upside in prices, as any asset is worth the present value of future earnings.

– 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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