Klassen: Strong demand underpins yearlings

CME September 2020 feeder cattle with 20-, 50- and 100-day moving averages. (Barchart)

Compared to last week, yearlings traded steady to $4 higher on average; calves traded $2-$4 lower, although light volumes made the market hard to define. All eyes were on feeder cattle futures, which closed up nearly $4 for the week. This set the direction in Western Canada.

Auction barns in Manitoba and Saskatchewan remain in holiday mode, but there was increased activity in Alberta. Excessive precipitation in central Alberta appears to have caused some cattle to come on the market earlier than usual. Small groups of quality yearlings were available at certain locations in central and southern Alberta. Steady feedlot demand underpinned the market and order buyers had a full deck of interest with limit orders at the current levels. Larger-frame thin cattle traded $2-$4 above average prices. Buyers were anxious to secure ownership of heavier feeders fresh off the pasture. These cattle barely pencil a profit but with harvest right around the corner, the cost per pound gain is expected to decrease in the fall period.

In central Alberta, larger-frame mixed steers weighing just under 850 lbs. sold for $191 while red-white-face medium-frame steers averaging 990 lbs. were quoted at $175. In southern Alberta, mixed steers weighing 835 lbs. were quoted at $190 landed in the feedlot and Simmental-blended steers averaging 1,000 lbs. were reported at $172 in the same region. Near Lethbridge, Simmental mixed heifers weighing 950 lbs. were valued at $160. All these cattle were fresh off grass. Feedlot operators favour these cattle because they can control the early weight gains on grain rations and push efficiencies.

Calves took second stage this past week, which is not uncommon at this time of year. The quality in lighter weight categories was quite variable. Backgrounders were on the sidelines and finishing operations picked away with subdued interest. Groups of two to four head were common, with the odd single running through the ring. In central Alberta, steers weighing 500-550 lbs. were quoted from $217 to $225 and heifers of similar weight were valued from $195 to $203. There appeared to be more risk this week in the calves because feedlots cannot contract these cattle for the second quarter of 2021. Buyers are sticking their neck out and with rising COVID cases in the U.S., the calves appeared to be incorporate a small risk discount this week.

— 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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