Klassen: Buyers risk-averse on feeder cattle

Western Canadian feeder cattle markets were trading $5-$10 below values seven days earlier. Sharper declines were noted on heavier replacements over 800 lbs., which at times sold for $15 below week-ago levels; quality mid-weight feeders in the range of 600 to 800 lbs. were down $8 on average. Eastern Prairie markets held value on feeders under 600 lbs., but in Alberta, these cattle were also down $5-$8.

Hope is fading that the fed cattle market will experience any type of recovery and feedlots are extremely defensive, with June live cattle futures $10 below the April contract. Wholesale beef prices continue to slip and retail prices have been grinding lower in order to encourage demand. Major feedlot operators that hedged fed cattle heavily at the higher levels are now basing purchases on the margin structure in the deferred positions. I call it the “wisdom competitive advantage,” which appears to be eroding.

Backgrounded cattle are starting come on the market and buyers are extremely fussy in regards to flesh characteristics. Medium-flesh larger-frame mixed steers weighing just over 800 lbs. were quoted at $198 in west-central Alberta. If feedlots don’t have an idea on the previous feeding program, they are extremely risk adverse. Light flesh black steers just under 800 lbs. were quoted at $218 in Lethbridge. Simmental mixed steers averaging 740 lbs. were quoted at $228 north of Calgary but this was in the upper end of the range. Similar-weight cattle steers were trading around $215-$220 across the Prairies. Southern Alberta markets appeared to show premiums especially on the lighter flesh categories. Quality feeder in the 700- to 850-lb. range were $10-$15 above markets in other regions. There’s a fair amount of pen space available in the Lethbridge area because market-ready supplies of fed cattle are now cleaned up. Secondly, spring-like temperatures in southern Alberta and southwestern Saskatchewan also enhanced buying interest.

Feed barley is quoted at $221 per tonne for April-May delivery in Lethbridge, almost $10 higher than nearby shipments. The feed market is building in a premium because barley stocks are expected to tighten late in the crop year.

Recessionary type factors are setting a negative tone for beef demand in the Canadian market. Weaker consumer spending comes at a time when fruit and vegetable prices are up 18 per cent over year-ago levels. Wholesale beef values have further downside potential in the second and third quarters due to the sharp year-over-year increase in beef production.

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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