Klassen: Feeder market digesting lower beef demand

Compared to last week, western Canadian yearling prices were down $12-$18; mid-weight calves were down $10 to as much as $15 while calves under 550 lbs. were down $4-$8.

The market is incorporating a risk discount due to uncertainty in beef demand for the second and third quarters of 2020. Feedlot margins are in negative territory by $250-$350 per head. The major problem is in May through July, with feedlot inventories 18 per cent above the five-year average. Alberta packers were buying fed cattle at $141 last week but the April live cattle futures are trading US$10-$15 below the U.S. cash market. Backgrounders are liquidating fall-placed calves and heavier weight categories are moving in line with the fed market. Many producers have held back on sales or taken their feeders totally off grain to limit the weight gain.

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In central Alberta, tan steers weighing just over 900 lbs. were quoted at $163; mixed steers weighing 840 lbs. traded for $170 while mixed heifers weighing 830 lbs. were reported at $153. In the Lethbridge area, Charolais blended steers weighing 870 lbs. were valued at $160. Outside the major feeding regions, markets were down more severely. Medium- to larger-frame mixed steers weighing 880 lbs. were valued at $155 in central Saskatchewan.

Prior to this week, calves experienced limited slippage but the absence of the finishing feedlot in the lighter weight categories resulted in the softer tone. October feeder cattle futures are down US$35 from the recent highs; yearling price expectations for the fall period are down $20-$30 from earlier forecasts and the calf and grasser markets are reeling. Markets were variable on similar weight cattle; in some cases, values differentiated by $15 on similar weight cattle. This may have been due to the volatility in feeder cattle futures trading within a US$10 range on certain days.

In southern Alberta, higher quality steers weighing 620-640 lbs. traded from a low of $190 to a high of $200; heifers weighing from 600 to 630 lbs. traded in a range of $160-$172. In the eastern Prairie regions, there were isolated pockets that ignored the coronavirus pandemic. Prices appeared to hold up fairly well on grassers and lighter calves in some areas of Manitoba.

In the short term, there are reports of U.S. and Canadian grocers running low on meat supplies as consumers stock up on food. However, restaurant traffic will be down 30 per cent to as much as 50 per cent over the next month, which is extremely negative for higher-end cuts of beef.

— 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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