Klassen: Feeder cattle succumb to negative margins

Alberta fed cattle prices have dropped nearly $15 over the past three weeks. Feedlot margins are deep in red ink, with losses amounting to $200-250 per head. Compared to last week, yearlings and calves over 700 lbs. traded $3-$5 lower; calves under 700 lbs. were down $5-$8 with some feeder markets in Alberta dropping as much as $10. Alberta packers were buying fed cattle in the range of $150-$153 but U.S. cash prices in the southern Plains reached a seasonal high of US$125. Auction barns in Manitoba experienced minor slippage as U.S. buying interest appeared to be supportive; however, once this demand was filled, there was limited interest from western Canadian feedlots. Phone calls from order buyers went unanswered this week as Alberta feedlots focused on selling fed cattle south of the border.

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In central Alberta, mixed steers weighing just under 900 lbs. sold for $174 while tan mixed fleshier 800-lb. steers sold for $182. In southern Manitoba, larger-frame Charolais blended fleshier steers averaging 800 lbs. sold for $180 while black larger-frame heifers weighing 750 lbs. were valued at $165. Larger-frame Simmental blended buttery steers weighing just over 700 lbs. were valued at $190 in southern Alberta.

Lighter calves were quite variable across the Prairies. Some buyers paid up for grassers under 650 lbs. but this not the norm. There were limited supplies of lighter calves available which may have spurred on the “out of touch” buyer. Cow-calf producers held back on bringing these lighter bawlers to town, given the extremely cold temperatures. Black steers weighing 680 lbs. were valued at $199 in the Lethbridge area. Steers weighing 600 lbs. were regularly quoted from $201 to $210 across the Prairies. There was a small group of Angus larger-frame steers weighing 525 lbs. valued at $233 in southern Manitoba, but order buyers didn’t see too many of these lighter calves in Alberta and Saskatchewan.

Fed cattle supplies are rather snug in the U.S. and the beef complex is heading into a period of seasonal high demand during March. In Alberta, packers have traded this situation to the textbook by consistently booking supplies three to four weeks forward, thereby never being caught short. This divergence in the U.S. and Canadian fed cattle prices will take a couple of weeks to even out. In the meantime, the feeder market will remain quite volatile. U.S. feedlot margins are favourable while Alberta feedlots which sell in the spot market to local packers are struggling.

— 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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