Klassen: Cash feeder market shrugs off lower futures

This past week, Alberta packers were buying fed cattle in the range of $270-$274 on a dressed basis, up $2-$4 from seven days earlier. Strength in the fed cattle market spilt over into the feeder complex as feeding margins moved into positive territory for the first time this year.

Compared to last week, western Canadian yearling markets traded $3 to as much as $6 higher while calves were quite volatile, jumping $3-$8 depending on the region. Major Alberta feedlots were very aggressive on short-keep replacements with orders reaching across the Prairies. Fleshier replacements experienced sharper discounts but quality packages were very well bid. U.S. buying interest was also prevalent in Manitoba and Saskatchewan.

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In central Alberta, medium-flesh larger-frame Simmental blended steers weighing just under 900 lbs. reached up to $187; black Angus-based larger-frame heifers with lighter butter levels averaging 860 lbs. were quoted at $179. In eastern Saskatchewan, larger-frame Charolais mixed steers averaging 820 lbs. were valued at $199 landed in the feedlot. A smaller group of larger-frame tan steers weighing 720 lbs. were quoted at $212 in the same region.

Feedlot operators were the main buyers of calves, with limited supplies of yearlings coming on the market. The farmer-backgrounding operator took one more swing at the market as well, with wetter conditions forecast for the latter part of the week. According to Statistics Canada, Canadian farmers intend to plant 7.155 million acres of barley this year, up 10 per cent from last year’s seeded area. The bearish feed grain outlook enhanced demand in the lighter weight categories. Packages of mixed steers weighing 575 to 600 lbs. were quoted from $235 to $240 landed in southern Alberta. In central Alberta, a group of red and tan steers weighing 540 lbs. were valued at $250 and Charolais mixed heifers weighing 510 lbs. were quoted at $210.

The “managed money” trader had a record-long position on live cattle futures. A couple or negative news items sparked severe liquidation as these funds all tried to exit the door at the same time. The commercial trader had a record-short position in place, which suggests packers could have a record long in the cash market. The cash markets remain firm so this move in the futures may be overdone.

— 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 or via his website at ResilCapital.com.

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