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Analysts wonder when, how feeder demand will break

Feeder cattle moving through Manitoba’s auction yards continued to see good demand and firm prices during the week ended March 2.

“Prices are staying very strong,” said Keith Cleaver of Heartland Livestock Services at Brandon, citing the continued firmness in U.S. futures together with a reduction in cattle numbers in Western Canada as supportive influences.

From a basic supply/demand standpoint, the fact that there are fewer feeder cattle around this year, compared to previous years, means the buyers are forced to pay up in order to acquire their necessary supply.

U.S. cattle analysts have also linked the strength of the feeder market there, at least in part, to the combination of excess slaughter capacity and tightening cattle supplies. As a result, the packers have been forced to pay more for cattle than the beef is worth at the retail level. With their profit margins below break-even, there have been some questions raised over the sustainability of the market in its present state. While something can be expected to inevitably break, it remains to be seen if the break will come in the form of higher retail beef prices, a decline in cattle values, a reduction in capacity, a combination of all three, or something else entirely.

Eastern and western feedlots were the primary destinations for Manitoba feeder animals once again, with some demand from the U.S. also coming forward, said Cleaver. A few slaughter cattle were also heading south of the border.

Looking ahead, “I firmly believe the price will stay very steady,” said Cleaver, adding that a sudden increase in cattle volumes was unlikely at this time.

With calving season underway in earnest, the need for pen space is resulting in more feeder animals making their way to market. However, Cleaver said, the seasonal increase in volumes will not be enough to weigh on prices.

For butcher cattle, prices edged up a bit on cows and bulls during the week. Cleaver said tightening supplies were behind that strength.

Spring road restrictions are starting to be implemented across Western Canada, and will come into effect in Manitoba beginning March 11. The road bans won’t be a determining factor in whether producers move their cattle, although Cleaver said there may be some extra movement in the week ahead of the restrictions.

Snowfall this winter has been lighter than normal across most of Manitoba, but “if we can get some nice rains in April, that will do more good than a foot of snow,” said Cleaver. He expected hay and pasture land would be off to a good start this spring, as the land may be a little dry on top, but there is still ample subsoil moisture.

In 2011, spring and early-summer flooding caused problems for the cattle sector across much of Manitoba and shut down Heartland’s Brandon yard for nearly a month. Right now flooding isn’t a concern according to the latest provincial forecast, but time will tell.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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