Klassen: Feeder cattle experience volatile price action

Western Canada’s feeder cattle prices traded in an volatile fashion this past week due to uncertain economics and beef demand uncertainty. Early in the week, auction barns were reporting values steady with week-ago levels; however, buying enthusiasm started to wane by Wednesday and prices were $3-$5 per hundredweight (cwt) lower by the weekend.

Feedlot operators pulled in the reins, with equity markets dropping to five-month lows while crude oil dropped to prices not seen since June of 2012. Alberta packers were buying fed cattle at $165/cwt and wholesale prices held value, but this did little to offset the deteriorating outlook five months forward. It takes years for consumers to increase spending habits, while sharp contraction can occur within days. Cattle markets are extremely sensitive to economic uncertainty and this was once again proven this past week. Larger volumes were noted at most auction markets, with the calf run now in full swing. Ideas that supplies would extremely tight this fall quickly evaporated with the realization that auction markets were advertising sizeable numbers at upcoming feature calf sales.

There were no major features this week. Exotic steers averaging 500 pounds sold for $290/cwt in central Alberta. A healthy group of larger-frame Charolais-cross calves weighing 675 lbs. sold for $265/cwt in southern Alberta. Values across Western Canada have levelled off, which caused major feedlots to buy closer to home. U.S. buyers were active in Manitoba, keeping prices well supported with the Canadian dollar deteriorating relative to the U.S. greenback.

Feed barley prices jumped to $180 per tonne delivered Lethbridge, up $20 per tonne from earlier in October. Feedlots are now factoring in higher costs per pound gain and feeding margins have narrowed. April live cattle futures are down $6 from the recent highs and feedlot operators are starting to feel vulnerable to a margin squeeze next spring. Carcass weights are above year-ago levels and fourth-quarter beef production will likely finish higher than previous estimates. The risk premium in the fed and feeder cattle markets is eroding now that beef production is more certain. The feeder market sentiment appears to have changed from overzealous enthusiasm to cautious anxiety.

Cattle markets usually lag price activity in the financial sector by two to three weeks, so this is something to watch moving forward.

– 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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Jerry Klassen

Jerry Klassen is manager of the Canadian office for Swiss-based grain trader GAP SA Grains and Products Ltd. and also president and founder of Resilient Capital, a specialist in commodity futures trading and commodity market analysis. He can be reached at (204) 504-8339 or visit his website at www.resilcapital.com.

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