Klassen: Feeder cattle market grinds lower

Western Canadian feeder cattle prices ended the year on a soft tone, trading $5-$10 below week-ago levels; fleshier unweaned calves were down $10 to $15 because adverse weather plagued much of the Prairie region.

Cattle buyers were busy on the phone, but receiving no orders. Feedlots appear to be content with their current inventory levels and there is no need to add numbers until profitability resurfaces; however, when you’re 10 metres below water, it could take some time. Feedlot hands don’t want to contend with fresh placements over the holidays, and muddier pen conditions eliminated the thought of bringing in fresh calves. The market dynamics were very unfavourable to the cow-calf producer this week, judging by the phone calls asking “Sell now or later?” which tended to end with more confusion and frustration.

All weight categories have suffered severely over the past two weeks. In central Alberta, mixed steers weighing 675 lbs. averaged $214, while their older brothers at 750 lbs. averaged $201. In southern Alberta, weaned larger-frame Charolais-cross steers weighing 725 to 755 lbs. were quoted at $210. Medium-frame lower-flesh mixed semi-weaned heifers averaging 650 lbs. were quoted at $200 in central Saskatchewan. A smaller group of larger-frame Simmental-cross steers from 810 to 850 lbs. were quoted at $202 in the same region. U.S. prices were also under pressure, averaging $5-$8 below week-ago levels.

Consumers shied away at the higher levels and now it’s taking time for retailers to lower prices to encourage demand. U.S. wholesale choice beef ended the week at $194, down from $202 last week and down $50 from December 2014. We’ve not seen a parallel drop in retail beef prices while pork and poultry seem to be doing a better job of moving product. The chain of participants in the beef industry is not on the same page, and the beef pipeline is relatively plugged at the retail level.

I think the feeder market is nearing levels where feedlots can see some profitability on fresh placements. However, the market usually overextends itself on the upside and the downside.

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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