Western Canadian auction barns have been rather quiet so far this summer. Smaller groups of feeder cattle have come up for sale which have been discounted from the regular market structure earlier in spring.
Feedlot margins have been hovering near break-even, which is a positive signal, and the market is starting to focus on the price structure for the fall period. Average weather conditions are expected to materialize so the yearling run will start in line with feeder cattle moving in mid- to late August. The ill-defined market in Western Canada has caused feedlot operators to look south for the price discovery and the market looks very strong for the fall period given recent trades in the U.S. southern Plains.
Light-weight feeder cattle under 500 pounds in Texas and Oklahoma are trading around $200 per hundredweight (cwt) for November delivery. The U.S. Department of Agriculture reported that 825-lb. yearling steers sold for $157/cwt for October placement.
The feeder complex is factoring in an abundant feedgrain situation, given the current crop conditions and weather forecast. Canadian year-to-date feeder cattle exports are running 60 per cent above year-ago levels as the U.S. market has showed a premium throughout the winter and spring. This trend will likely continue given the historically low feeder cattle supplies in the fall period.
I’m forecasting a Canadian barley crop near nine million tonnes, up from the 2012 production of 8.1 million tonnes. Despite the marginal year-over-year decrease in seeded area, yields are expected to be sharply higher in 2013. Barley for new-crop position is trading at a $50 per tonne discount to old-crop and additional weakness can be expected given the world coarse grain fundamentals.
Feedlots in Canada and the U.S. have gone through a period of significant equity erosion over the past year. The feeder market is experiencing a rebound in buying enthusiasm; however, in addition to weaker feedgrain values, the fed market needs to justify the current price structure for fall delivery. At this time, the feeder market is based on some very optimistic forecasts for fed cattle prices during the winter of 2013-14 and there is a fair amount of risk from now until then.
— 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.