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Cattle buyers get what they can, while they can

Solid demand for feeder cattle kept values well supported at Manitoba’s auction yards during the week ended Jan. 27, as warmer temperatures saw volumes increase as well.

After bitterly cold temperatures slowed movement at some yards the previous week, it was back to business as usual in the last full week of January as temperatures flipped over to unseasonably warm levels.

A major reason behind the aggressive demand for feeder cattle these days is the fact that numbers on offer in the spring will likely be on the smaller side, according to Dave Nickel of Gladstone Auction Mart. Buyers are picking up cattle now while they can, he said, amid ideas that the animals just won’t be there later in the year.

The demand is there for all classes of feeders, but, as always, the best demand is for the higher-quality animals, Nickel said, noting that the buying was just not as aggressive on the second and third cut.

Eastern and western feedlots remain the primary destinations for the feeder cattle moving through the Manitoba yards, with about 10 per cent sticking around locally, according to market participants.

There is talk that the strong feeder cattle market could remain that way for the next three years. Cow numbers have dropped significantly, both locally and in North America as a whole, which means it will take some time to bring those numbers back up, Nickel said.

On the slaughter side, prices were steady to slightly higher, with all of the auction yards reporting good demand.

It was a similar story in the butcher market as in feeders. Nickel said buyers are looking to stock up on cows now, as they know there won’t be that many on offer going forward.

The strength in both the feeder and butcher cattle markets is not just a matter of localized supply-and-demand issues. Rather, the tight supply and strong demand scenario is playing out across North America and globally as well.

Lowest inventory

The U.S. Department of Agriculture released semi-annual cattle inventory data on Jan. 27 that was widely seen as supportive for cattle and beef values going forward. As of Jan. 1, 2012, the U.S. cattle herd was down two per cent compared to the previous year and, at 90.8 million head, represents the lowest inventory since 1952. A separate report from the University of Missouri put out during the week pointed to a four per cent increase in U.S. beef demand in 2011, the first such increase after the 2008 recession and three consecutive years of declines.

However, the USDA data also points to signs that herd reductions are slowing down and could be turning the corner back toward increases by 2013. More heifers were being held back for replacement, which generally signals the start of herd expansions.

Older ranchers continue to exit the industry altogether, and the young guys aren’t sticking around to take their place, Nickel said. However, with profitability returning to the cattle sector, he noted that those staying in the industry are looking to expand.

In other outside news that may temper the upside in local cattle markets, the Canadian dollar moved back near parity with its U.S. counterpart during the week, which should continue to keep U.S. buyers out of the Canadian market. Feed grain prices were also showing a little firmness, which would cut into the profitability of livestock feeders.

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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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