Klassen: Bounce in fed cattle supports feeders

Feeder cattle prices ended the year on a soft tone, trading steady with week-ago levels. Most auction barns were in holiday mode, resulting in minimal sales across the Prairies. Christmas couldn’t come soon enough for feedlot operators and the bounce in the live cattle futures early in the week was a refreshing gift. This past year was one for the history books, with feeder cattle prices approximately $40 below December 2014.

Markets are extremely sensitive, at historical highs for all commodities, and cattle markets are no different. The magnetism for markets to fall back to average prices is a stronger pull than a thousand horses, but the ability to forecast the peak is almost impossible. The 2015 cattle market could be compared to the wheat rally of 2008; hopefully, the story doesn’t finish like wheat, moving from one extreme to another. The cow-calf producer usually extends the expansion phase by a couple of years after the peak in prices, so a resumption back to the highs is not likely. After the calls this past week, I’m telling producers not be fooled longer-term by the historically low placement number from the U.S. Department of Agriculture’s recent Cattle on Feed report.

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Charolais-cross steers averaging just over 750 lbs. ended the year at $207 in central Alberta; black Angus-cross steers averaging 525 lbs. were quoted at $245 in the same region; heifers of similar weight were trading at a $20 discount.

Alberta fed cattle prices jumped $6-$7 this past week, while U.S. packers increased bids by $8-$10. It appears the backlog of market-ready supplies is being alleviated on both sides of the border. While pen closeout values remain sharply below break-even, the trend reversal in the fed cattle complex stabilized the feeder market. Feeder cattle prices are now at levels where feedlots can pencil out a break-even for the late spring and summer which should limit further downside over the next month. I’m still expecting further strength in the Canadian dollar, which could temper the recovery in the Canadian fed market. Feeder cattle exports to the U.S. will finish sharply below 2014 and this trend will likely remain in place in the first quarter of 2016.

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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