Klassen: Feeder cattle demand softens

(Photo courtesy Canada Beef Inc.)

Compared to last week, Western Canadian feeder cattle markets traded $2 to as much as $5 lower. Feedlot margins have come under pressure over the past week which resulted in lower bids for all weight categories. Alberta and Saskatchewan feedlot inventories are running 18 to 20 per cent above year-ago levels. Pen space is at a premium, especially in Southern Alberta. Buyers looking to place cattle in a custom lot are having a difficult time securing space. Major buying from these cattle investors is on the sidelines. The farmer backgrounding operator, that usually buys calves at this time of year is choosing to sell barley on the market, instead of on the hoof.

Feed grain prices are sharply higher than last year and costs per pound gain have added to the risk of feeding over the winter.  All these factors have contributed to the softer tone. Auction barns across the prairies are holding feature calve sales and supplies coming on stream are larger than expected. U.S. auction market receipts were near 52-week highs last week; buyers from south of the border lowered their bids for Canadian origin. Comments from buyers reflected that it’s pretty easy to buy calves; feedlots can build up decent pen size very quickly compared to past years.

Higher quality yearlings were relatively unchanged but smaller late blooming packages were $2 to $4 lower. In Central Alberta and Saskatchewan, feedlots were quoting 950 pound steers in the range of $187 to $193; mixed steers averaging 850 pounds were trading from $190 to $195. Mixed yearling heifers from 800 to 850 pounds actively traded from $179 to $183.

Hereford-based mixed calves averaging around 735 pounds were quoted at $205 in Southern Saskatchewan; similar quality heifers weighing 710 pounds reportedly sold for $180 in the same region. Tan larger frame 620 pound steers were valued at $212 in Southern Alberta while Charolais-mixed 600 pound heifers were quoted at $188.

Equity markets appear to be melting down after the Dow Jones Industrial average made a record high on October 3. March feeder cattle futures have dropped nearly $7 from the contract highs which were made on October 2.  There’s a very defensive tone in the feeder complex and feedlot operators are concerned that beef demand will slow down next summer.

– 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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