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Klassen: Higher corn weighs on feeder futures

Feeder cattle futures were under pressure last week as December corn futures moved above the psychological $4.50 level. Top-quality steers weighing just over 900 pounds were selling for $106 in southern Alberta; 825-pound steers reached up to $114. Basis levels in Western Canada strengthened by $3 to $6 last week as auction market prices were $2 to $4 lower on average. U.S. feeder cattle were also $3 to $4 lower on average, with slightly larger volumes coming on the market. Slaughter cattle in southern Alberta traded up to $91 but the U.S. fed market was $2.50 lower, finishing at $97.

Rising feedgrain costs will be the main factor tempering the strength in feeder cattle over the winter. The world is no longer comfortable with past stock levels of cereal grains and there is concern that corn values could behave similar to this past summer’s wheat market. The volatility in corn and barley may postpone cattle herd expansion for another year. Looking at past history, U.S. cow-calf producers need one full year of historically high calf prices before actively moving into expansion mode.

Positive jobs data underpinned the cattle complex late in the week. While ground beef prices remain near historical highs, prices for “middle meats” and “high-valued cuts” are near two-year lows, limiting the strength in the carcass value. Overall beef demand should improve longer-term as the unemployment declines and consumer incomes increase.

— 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.

The material contained herein is for information purposes only and is not to be construed as an offer for the sale or purchase of securities, options and/or futures or futures options contracts. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. The risk of loss in futures trading can be substantial. The article is an opinion only and may not be accurate about market direction in the future. Do not use this information to make buying or selling decision because adverse consequences may occur. This information may be wrong and may not be correct about current market conditions in all areas of Canada. This is an opinion only and not based on verified facts.

About the author

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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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