Klassen: Feeder market upward trend stalls

Western Canadian feeder cattle prices were unsettled last week, trading $3 higher to $3 lower. However, feedlot operators were eyeing the U.S. market, where softer U.S. fed cattle prices caused feeder cattle prices to drop by $4 to $8. The deteriorating Canadian dollar was mildly supportive, but the uncertainty in the fed cattle set a negative tone.

U.S. fed cattle in the southern Plains were down $3 to $4 from seven days earlier, but Alberta packers were buying fed steers in the range of $180 to $183.75, the same as last week. Major feedlot operators appeared to back away from calves under 700 pounds late in the week, while heavier feeder prices were relatively stable. Auction market receipts are larger than anticipated for this time of year, which is surprising many feedlot operators. Backgrounding operations are full, so the major players are setting the price structure. Fluctuating temperatures and feedlot stress also caused buyers to incorporate a risk discount, given the potential for health problems. Wet calves moving longer distances is a recipe for larger death loss, and Manitoba temperatures were in positive territory late in the week.

Features included quality exotic 560-lb. steers reaching $285 in central Alberta. Auction markets south of Edmonton saw 500- to 600-lb. steers trading in the range of $290 to $329, while in Manitoba, market reports for similar weight were $265 to $300. The regional discrepancies appeared to be quite large this week, with U.S. and Ontario buyers somewhat quieter in Manitoba and eastern Saskatchewan.

There were spurts of year-end buying but this had little influence, given potential for softer fed cattle prices in January and February. U.S. wholesale beef values were under pressure as first-quarter U.S. beef production looks to come in larger than expected. Ideas are the Canadian exports of fresh chilled and frozen cuts to the U.S. could slow down in January.

Economic uncertainty due to softer crude oil prices also weighed on wholesale beef prices. This is a major factor to watch over the next few months, because the ripple effects through the economy may change the trend in consumer spending and beef consumption.

Feedlot margins remain in healthy territory, but if fed cattle values deteriorate, the feeder market will follow, as seen in the U.S. this past week.

— 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.