Klassen: Feeder cattle market ends on mixed tone

(Photo courtesy Canada Beef Inc.)

Western Canadian feeder cattle markets have ended the year on a mixed tone with most auction barns closed for the holiday season. Alberta packers were buying limited volumes of fed steers at $178 per hundredweight (cwt), down from highs of $183 earlier in December.

The uncertainty over feedlot margins for the first and second quarters of 2015 is expected to result in a softer but volatile feeder cattle market in January. We’ve seen how sensitive U.S. feeder prices are to downward price action in the fed market and local prices will behave in a similar fashion. Heavier calves over 700 pounds appear to be more vulnerable, while lighter calves will have tempered downside given the longer timeframe to the finished animal. In any case, I think cow-calf producers are looking at the broader picture with prices for 400- to 600-lb. steers up 75 per cent over year-ago levels.

Record-high feeder cattle prices encouraged the cow-calf producer to sell cattle sooner than normal. The industry is expecting the start of backgrounded cattle to come on the market later in January; lighter fall-placed 450-lb. calves will be sold into finishing lots in April and May. I’m expecting to see larger sales volumes in late spring compared to normal in both Canada and the U.S.

Price action will depend on consumer spending. After a robust fourth quarter, the average North American usually reins in food spending for January and February. New Year resolutions to lose weight often last for a maximum of two weeks, but the economic uncertainty will play a larger role determining restaurant traffic. There is no signal this downward trend in crude oil has come to an end and we could see crude oil near $30 by late April. The energy sector needs to encourage demand in a big way while sharply reducing the supply situation. Cattle producers can’t discount the other commodities and financial markets. U.S. wholesale beef prices have dropped nearly $20/cwt over the past couple weeks, with retailers and restaurants cutting back on orders for the month of January. I’m not calling this a correction but an adjustment to current fundamentals as the supply situation becomes more certain.

— 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.

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