Klassen: Feeder cattle market feels toppy

Western Canadian feeder cattle prices were steady to $3 per hundredweight lower on average last week. Softer fed cattle prices, along with a stronger Canadian dollar, set a negative tone. U.S. feeder cattle prices were down $2-$4 per hundredweight at major auction barns in the southern U.S. Plains.

General comments from the industry suggest that feedlot operators are starting to back away from the market while buying for replacement heifers remains active.

Red Angus-cross steers averaging 486 pounds sold for $196/cwt in central Alberta; a small group of medium-flesh exotic steers weighting 573 lbs. sold for $179/cwt in the same region. In southern Alberta, Charolais-cross steers averaging 686 pounds were still $167/cwt landed in the feedlot. A feedlot owner in the Lethbridge region reported that a small group of large-frame, medium-flesh, weight-controlled backgrounded exotic age-verified steers weighing 780 lbs. sold for $154/cwt landed in the feedlot.

Alberta packers bought cattle at $115/cwt this past week, down $1/cwt from the first week of March. Feedlot margins are hovering near break-even in Alberta while the U.S. feedlot operator has not experienced positive margins since last April.

Looking forward, fed cattle prices in Alberta need to reach $121/cwt for June given the values on replacement cattle this past winter. There is potential for Alberta feedlots operators to experience $60 to $80 per head losses in May and June, if fed cattle prices stay at the current levels.

Feeder cattle prices are vulnerable to downside pressure because cattle buyers are starting behind the eight ball. Keep in mind there is a very strong seasonal tendency for fed cattle prices to soften from April through July.

Barley prices have risen $10 per tonne in southern Alberta over the past month, increasing the cost per pound gain. Barley stocks are projected to be historically tight at the end of the 2011-12 crop year, which will keep prices firm into the summer.

— 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 at 204-287-8268 for questions or comments.

About the author

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Jerry Klassen 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 or via his website at ResilCapital.com.

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