Klassen: Feeder market absorbs double-edged sword

Compared to last week, western Canadian feeder cattle markets traded $3 to as much as $6 lower.

The feed grains market is writing the story for the feeder market. August feeder cattle futures lost $10 this past week and U.S. cash feeder prices were also down US$4-$6 compared to seven days earlier. Ideas are that six million to 10 million U.S. corn acres will not get planted this year. The corn market may experience a setback but the fundamentals suggest we could see US$6-per-bushel corn before this corn crop is harvested. Central Saskatchewan and central Alberta have received less than 40 per cent of normal precipitation. On Friday, if a feedlot needed 2,000 tonnes of barley, the offer was closer to $300 per tonne delivered Lethbridge, up $25 from last week.

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Alberta packers were buying fed cattle at $245 on a dressed basis, down $8 from last week. Breakeven pen closeouts for May are around $160 live and this week’s price equates to $145; therefore, unhedged cattle are in red ink by nearly $200 per head and feedlots fear this will become worse before the environment improves.

In the Lethbridge area, Angus-based steers averaging 965 lbs. were quoted at $160. In central Alberta, the market held up; a small group of medium-frame mixed steers averaging 850 lbs. were valued at $188. In the same region, red mixed medium-flesh heifers weighing 840 lbs. were valued $170.

Calves were quite variable across the Prairies. The eastern Prairie regions were readily trading $3-$5 below prices in the major feeding regions of Alberta. In central Saskatchewan, tan mixed steers weighing 640 lbs. were quoted at $206; in central Alberta, red white-faced steers averaging 655 lbs. were reported at $215.

There is a fair amount of uncertainty moving forward and feedlot operators are taking a cautious approach. If drier conditions continue in Western Canada, we’re going to see a fair amount of feeder cattle come on the market sooner than normal. In Ontario, only about 50 per cent of the corn is seeded as of May 31 and straw is selling for $400 per tonne. Eastern Canadian buyers are absent which has left a void in the Manitoba and Saskatchewan feeder cattle markets. U.S. feedlots in the Midwest are contending with excessive moisture, which has also tempered buying interest from south of the border.

— 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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