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Klassen: Feeder cattle jump on healthy margin structure

Western Canadian feeder cattle jumped $3-$5 on average last week, with 800-plus-lb. yearlings trading as much as $8 higher. Historically high finishing margins finally resonated with feedlot operators and a precarious attitude from recent weeks was thrown by the wayside.

Order buyers were inundated with interest as bids were relatively firm across the Prairies. Adverse weather failed to cool the infectious optimism and the market appeared to incorporate a risk premium due to the uncertainty in available supplies. Larger-frame Simmental-cross steers with lower butter levels averaging 850 lbs. were quoted at $170 in the Lethbridge area; 900-lb. larger-frame medium-flesh Limo-cross steers were quoted at $165; medium- to larger-frame Angus-based heifers with medium flesh were quoted at $162 in the same region.

Calves coming on stream this time of year are fairly high quality and there was plenty of competition. Major feedlots didn’t hesitate to spur on farmer-cattle producers for grassers. Quivering lips were noted after a major run up with the winner showing immediate buyers’ remorse. However, it was only a matter time before previous sales looked like a steal. Mixed steers with no special feature averaging just over 700 lbs. sold for $179 in central Alberta while mixed medium-frame 700-lb. heifers quoted at $167.

Alberta packers were buying fed cattle in the range of $162-$165, which is approximately $25-$30 above break-even pen closeout values. The feeder market definitely has upward momentum while feedlots are closing their eyes on the sharp futures discount noted in the summer months. The nearby fed cattle basis level is so strong, the feeling is these futures have to rally or the cash has serious downside. It’s a wait-and-see situation but with the margins at the current levels, they can absorb the abnormal market dynamics for some time.

— Jerry Klassen is manager of the Canadian office for Swiss-based grain trader GAP SA Grains and Produits. He is also president and founder of Resilient Capital, which specializes in proprietary commodity futures trading and commodity market analysis. Jerry owns farmland in Manitoba and Saskatchewan but grew up on a mixed farm/feedlot operation in southern Alberta, which keeps him close to the grassroots level of grain and cattle production. Jerry is a graduate of the University of Alberta. He can be reached at 204-504-8339.

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