Klassen: Feeder cattle jump early in 2014

Western Canadian feeder cattle prices are expected to jump $4 to $8 per hundredweight (cwt) over the next couple of weeks as stronger slaughter prices and lower feed grains continue to drive the market higher.

While most auction markets were closed over the holiday season, feedlot operators are looking south for market direction on replacement cattle. Fed cattle in the southern Plains jumped sharply by $9/cwt, reaching $137/cwt. This should cause an equivalent rise in Alberta fed prices and renew buying enthusiasm at local auction barns. April live cattle futures followed the cash market higher and the fed market appears to be incorporating a risk premium due to the uncertainty in production. The industry was anticipating lower beef supplies in the first quarter but the uncertainty was delayed in the market structure and now there appears to be a buying frenzy for all types of cattle. The risk discount due to adverse weather has totally evaporated and any calves that have withstood one of the coldest Decembers on record are healthy enough to adapt into feedlot conditions.

There were not enough sales over the last week to describe market features in Western Canada. However, the U.S. Department of Agriculture reported that feeder cattle under 800 pounds were solidly $10 to $15 higher on very light receipts. U.S. cattle buyers are going to be looking north of the border, where Canadian prices have lagged the U.S market throughout the fall period. We saw a sharp rise in feeder cattle exports last year and this trend will only get stronger in the first two months of 2014 given the price discrepancy between Manitoba and Nebraska.

The function of the feeder market is to encourage expansion, especially in the U.S. At record-high prices, the market can be extremely volatile and we’ve seen this in the past during the first quarter of the year. Heifer retention is starting to influence U.S. feeder values while Canadian producers will likely keep the herd size at current levels. In the short term, the first law of physics is that an object in motion tends to stay in motion until another force starts to influence the market. Keep in mind there is a strong seasonal tendency for the fed market to decline in the second quarter, and wholesale beef prices are struggling at the higher levels.

– 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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