Klassen: Uncertainty looms for feeder cattle market

Western Canadian feeder cattle prices were steady to as much as $5 higher over the past week. Lighter-weight calves under 600 pounds experienced notable gains, while stronger buying interest was also noted on medium- to lower-flesh backgrounded cattle in the 800-pound-plus category.

Major feeding operations were quick to discount cattle that appeared to have too much grain in the rations early in the feeding cycle. Industry comments suggest many professionally-backgrounded cattle with controlled weight gains are moving direct off farm to finishing feedlot without going through the ring. This tends to result in a $2 to $4 premium, because there is less risk involved as feedlots know the rations over the past 60 to 90 days.

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Alberta packers were buying fed cattle in the range of $185 to $187 and pen closeout values are just over $180 in many cases. Feeding margins have narrowed, but there remains a fair amount of optimism moving into the spring period.

Wholesale beef prices have held value and fed cattle prices seasonally peak during late March and early April. However, the U.S. Department of Agriculture raised its estimate for first-quarter beef production by nearly 225 million pounds, reflecting that supplies are not as tight as earlier anticipated. The discovery of a BSE case on Friday may also temper buying interest although no export trade issues are expected to develop.

Early in the week, a mixed group of steers averaging 583 lbs. sold for $294 in central Alberta. A smaller group of Charolais-cross steers weighing just over 800 lbs. were quoted at $248 landed in southern Alberta feedlot. Similar cattle in eastern Manitoba were quoted in the range of $243-$245, with buying interest noted from Ontario and U.S. The Canadian dollar appears to have stabilized for the time being, with a small correction noted in the crude oil market.

In conclusion, the February feeder market continues percolate higher. Feedlots have experienced favourable margins and are looking to reload rather quickly. To reiterate from last week, the quality of cattle coming on the market has improved and the market is adjusting for these enhanced features. Retail and restaurant demand seasonally improves in March, which will be supportive for the overall cattle complex. On the flipside, larger than expected first-quarter beef production and the BSE discovery in Alberta may cause some uncertainty in the short term. There is potential for minor strengthening in the Canadian dollar as well, which could weigh on fed and feeder cattle values.

— Jerry Klassen is a commodity market analyst in Winnipeg and maintains an interest in the family feedlot in southern Alberta. He writes an in-depth biweekly commentary, Canadian Feedlot and Cattle Market Analysis, for feedlot operators in Canada. He can be reached by email at [email protected] for questions or comments.

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