Klassen: Grain strength limits feeder cattle upside

Western Canadian feeder cattle prices were steady to $2 per hundredweight (cwt) higher last week but firm feedgrain values tempered the upside potential.

Local auction market volumes were rather light in post-holiday mode. The U.S. market continued to show further strength, trading $3-$5/cwt higher on average in the Midwest. Heavier replacement cattle were leading the advance, with feedlots pushing to hit the April marketing period. Feedlot managers are fairly optimistic factoring in higher fed cattle prices for the spring period.

A small group of mixed steer calves averaging 550 pounds sold for $155/cwt in east-central Alberta. Red Angus cross steers with medium flesh weighing 650 lbs. sold for $148/cwt landed in southern Alberta. In southwestern Manitoba, a mixed group of 700- to 800-lb. steers averaged $135/cwt. Prices were a little softer in Saskatchewan, with the same weight range averaging $140 in the central region.

Volumes are expected to pick up over the next several weeks as early backgrounded calves from last fall come on the market. This will be a truer test of prices. Alberta packers were buying fed cattle in the range of $116-$117/cwt, marginally lower than late December.

U.S. carcass weights are running 23 lbs. above year-ago levels and despite seven per cent fewer cattle on feed compared to last year; first-quarter beef production may actually exceed year-ago levels. The focus is turning to consumer buying behaviour, which usually moves through a seasonal contraction in January and February and then surges in March. Wholesale beef prices were marginally lower this week. Friday’s U.S. Department of Agriculture report was considered friendly for corn which will keep feedgrain prices in Western Canada near record highs.

Feedlots appear to be factoring in higher fed cattle prices for the spring period, which has enhanced current feeder cattle values. The feeder market is famous for "biased optimism" despite the softer nearby economics in feedlot margins. I’m expecting feeder cattle prices to slowly trend higher throughout the winter period. Consumer disposable income needs to increase to justify record-high fed prices in late March and April.

– 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.