Klassen: Rationing beef demand weighs on feeder cattle

Feeder cattle in Western Canada were $2 to $3 lower last week despite the lower numbers coming on the market. Weakness in the fed cattle prices, along with the potential for negative feeding margins, set a softer tone in the feeder complex.

Buyers were not receiving the stream of orders last week and were rather quiet. Feedlot mangers were coming to terms with news of lower wholesale prices while packers bought lower than expected volume on both sides of the border. Packers are realizing red ink on the margin structure and with beef pipeline stocks building, they don’t want to hold significant volumes if retailers can’t move the product. 

Lower-than-expected GDP data from the U.S. and Canada may temper consumer confidence into the summer. Retail beef prices for most products are up 20-30 per cent over year-ago levels but recent economic data has consumer income only rising one per cent. How can beef and retail markets maintain the current price structure with a fixed-income wage earner having to pay more for everything from gas to laundry detergent?

In central Alberta, feeder steers weighing 625 pounds brought back $140 but prices were not much higher in the southern district of Feedlot Alley. The small farmer backgrounding operator has now liquidated his or her corrals and the market feels sluggish despite the lower available supplies. The market sentiment is quite soft, with most yards suffering from extreme wet conditions. Feedyard managers are bracing for another summer of lower efficiencies because cattle just don’t gain as expected when rainfall totals exceed 15 inches in June. We have seen one year of solid equity rebuilding in the feedlot sector, but this shouldn’t be used for a new set of facilities.

Feedlot operators are hesitant to buy one more animal until this feedgrain complex settles down and the corn seeding progress improves. Every week that corn is delayed increases the probability for higher feedgrain prices in Western Canada. Many grain analysts use the term “explosive,” which sends shivers up the spine of every pen checker in Western Canada.

— 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.

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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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