The U.S. Department of Agriculture’s cattle on feed report was considered bearish for the cattle complex. Feedlot inventories were five per cent higher than last year due to swelling placements in December. It now looks like beef production in the first half of 2011 will be above year-ago levels.
Feeder cattle prices have been led higher by the slaughter market and the downturn in fed cattle prices is negative for feeders. Healthy feedlot margins have spurred on buying enthusiasm for feeder cattle throughout the fall and winter but there is a major concern moving forward. Feedlots are full of expensive replacement cattle and deterioration in the fed market could result in negative feeding margins and pressure the feeder cattle prices.
U.S. retail beef prices for middle meats and higher end cuts are still near 2009 levels. The retail/wholesale spread has narrowed and is currently limiting the upside for the carcass value. U.S. beef exports may also be down from earlier projections. Taiwan started testing for a growth promotant Jan. 1, significantly slowing export business for US beef. Traders are now worried that this testing may spread to other countries.
One week can make a world of difference and it feels like the tide has turned. The feeder market is not expected to fall apart but the upside potential may be defined in the short term. The feeder cattle market has been on a “bullish trend” for about one year and it feels like the market is losing momentum.
— 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] or 204-287-8268 for questions or comments.