Klassen: Improving margins support feeder market

Average western Canadian feeder cattle prices were $3-$5 above week-ago levels, with top-quality larger groups trading as much as $8-$10 higher. While current pen closeouts remain underwater, the deferred positions are somewhat brighter, which has rejuvenated buying enthusiasm. Most risk management strategies rely on cattle feeders staying in the game all year. There appears to be pent-up demand as many feedlot operators were waiting for this opportunity after the equity erosion during the winter.

In central Alberta, smaller groups of mixed steers averaging 850 lbs. were trading in the range of $175-$180, with highs of $185 on larger-frame lower-flesh animals. Heifers weighing from 800 to 850 lbs. were readily moving from $160 to $165. Again, the quality on these cattle was quite variable; regional prices with smaller sales were trading at a minor discount to these levels, but the market was well supported overall. At the same time, there is still the risk-aversion mentality which tempered the upside momentum. Limit scale-down orders were imperative, given the uncertainty in the fed market, which also added to the variable price activity.

The recent rally appears to be bringing some cattle out on the market, with seeding wrapping up in many regions of the Prairies. Lighter calves are harder to come by this time of year, but there were higher-risk 400- to 500-lb. steers hovering at $220 in southern Alberta. Mixed larger-frame steers averaging 700 lbs. with no special feature reached above the magical $200 level and traded up to $210; heifers of similar weight were quoted from $175 to $180.

The futures market may have overextended the downside in the deferred positions while anticipating the sharp year-over-year beef production increases in the third and fourth quarters. We’re now seeing somewhat of a correction in the fed cattle market with wholesale prices holding value. The market may have defined the downside potential a couple weeks ago. I feel producers also need to watch the feed grains complex moving forward because the corn and barley markets are going to be extremely sensitive to yield developments.

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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