Klassen: Calm feeder market prior to fall run

Western Canadian feeder cattle markets were hard to define over the past week given the limited numbers on offer. Most sale barns remain in holiday mode and the few cattle coming on the market were of various quality. Lighter weight feeders were trading $3 to as much as $10 lower compared to week ago levels; however, quality yearling prices were unchanged to $5 lower. The prolonged period of above average temperatures with limited rainfall have caused pastures to deteriorate. It appears that that we’ll see a year-over-year increase in the number of yearlings coming on the market in August and early September. Small groups of mixed steers averaging around 850 pounds were quoted from $188 to $192 in Alberta while similar weight and quality steers in Manitoba were quoted from $180 to $182.

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Feeding margins remain in positive territory. Alberta fed cattle prices were quoted from $143 to $145 on a live basis and pen closeout breakeven values are hovering around $135. I mentioned last week that the Canadian feeder cattle prices are expected to divorce from the fed cattle market early in the fall period. While the U.S. cattle herd has rapidly expanded, total Canadian feeder cattle numbers will be similar to year-ago levels. Given the build up in feedlot equity over the past six months, Western Canadian yearling prices are expected to remain firm or even percolate higher in the short term.

Overhanging the feeder market is a stronger Canadian dollar which is making it difficult for feedlot operators to pencil profitable margins in the deferred positions. Lighter weight feeder cattle appeared to incorporate a risk discount. Mixed heifers weighing just under 600 pounds were quoted at $220 in Central Alberta; mixed steers averaging 575 pounds were trading from $230 to $235 in the same region.

U.S. feeder cattle markets were also quite variable with yearlings trading $6 lower to $6 higher compared to seven days earlier. The February and April 2018 live cattle futures have established a premium over the nearby contracts which caused yearling prices to take a fortuitous bounce late in the 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.

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