Klassen: Major operations aggressively bid feeder cattle

The feeder cattle market in a world of its own but has a fair amount of new information — mostly negative — to digest as the fall run moves into full steam.

Despite the upcoming uncertainty, western Canadian yearling prices were $4 to $8 above last week on very strong buying interest from larger operations; overall volumes were marginally higher compared to seven days earlier. Yearlings were extremely well bid with a mixed string of approximately 50 larger-frame lower-flesh steers averaging around 850 lbs. trading for $270 in central Alberta; a larger group of black Angus-cross steers weighing just over 900 lbs. dropped the gavel at $265 in the same region. Saskatchewan prices were trading at $5-$6 premium over Alberta, with higher-quality 800- to 825-lb. steers selling for $294-$297. U.S. buyers were more active this week in eastern Saskatchewan and Manitoba, despite the softer tone south of the border.

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Calf values were steady to slightly lower on limited volumes. A handful of mixed steers weighing around 650 lbs. averaged $320 in southern Alberta; 600-lb. mixed heifers were selling for $294-$300 in the same region. Most feedlots are focused on yearlings and the small farmer/backgrounding operator is busy harvesting.

Alberta packers were buying fed cattle at $185 this week but will only lift the cattle in about three weeks. The U.S. Department of Agriculture’s cattle on feed report had U.S. feedlot inventories up three per cent over Aug. 1, 2014 while July placements were down three per cent from year-ago levels. Packers have cattle to work through, and we may see further downside in the fed market during September. Seasonally, this is a slower period for beef consumption and supplies are building. Third- and fourth-quarter beef production will be larger than earlier estimates.

In past recessions, the cattle market tends to lag the economy by five to six months. The feeder market may hold up until we see the feedlot sector move through at least one full round of negative margins. Feed barley dipped to $210 per tonne delivered Lethbridge and break-even feedlot pen closeout values are near $185. The direct factors of input costs and fed cattle prices are not turning over; therefore, feeder cattle prices remain near historical highs.

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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