Klassen: Prolonged negative margins weigh on feeder market

Western Canadian feeder cattle prices traded $5-$10 lower last week, with certain auction barns experiencing a week-over-week decline of $15.

After 15 months of devastating margins, feedlots have thrown in the towel. If one of the largest, most sophisticated and efficient feedlots shuts the doors, the smaller players are wondering what they’re doing in this environment. The spillover psychological effect hung over the market like the Black Plague this past week. While many operators were attending sales, their hands were in their pockets and the phone was in silent mode. The cattle-feeding investor was also the sidelines and some of these players are sitting out a year. Prior to fall of 2015, the market required no thinking, but now everyone is sharpening their pencils and calls to analysts are almost overwhelming. The fear was as thick as fog with most operators blinded by market uncertainty.

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Heavier yearlings led the feeder complex lower. Larger-than-expected pork and beef production set a negative tone for live cattle futures and inhibited any potential for profitable forward contracting. This reinforced the risk-averse attitude amongst feedlot operators. In central northern Alberta, larger-frame medium-flesh Angus-cross steers averaging around 850 lbs. traded for $165. Discounts on fleshier types were noted in the range of $3 to $6. Heifers weighing 900 to 925 lbs. were readily trading from $150 to $155 across the Prairies. Larger-frame 850-lb. heifers reached up to $158 to $160 in southern Alberta. Lethbridge values were once again a bright spot, trading at a marginal premium as feedlot operators focused on local quality cattle. However, this was not representative of Western Canada.

Calf prices were also sharply lower. During the summer of 2017, weekly beef production could reach five-year highs and the market is incorporating a risk discount. Charolais-cross mixed steers weighing just over 600 lbs. were quoted at $190 in the Calgary area. Manitoba and Saskatchewan markets appeared to have support due to limited numbers on offer. Steers averaging 650 lbs. were quoted at $182 in central Saskatchewan. Mixed heifers weighing 600 lbs. with medium flesh were quoted at $160 to $163 across the Prairies.

The surge in weekly beef and pork production is weighing on the fed market and spilling over into feeders. It may take longer than anticipated for the market to absorb these larger-than-expected supplies.

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.

About the author

Columnist

Jerry Klassen manages the Canadian office of Swiss-based grain 
trader GAP SA Grains and Produits Ltd., and is president and founder 
of Resilient Capital specializing in proprietary commodity futures trading and market analysis. Klassen consults with feedlots on risk management and writes a weekly cattle market commentary. 
He can be reached at 204-504-8339.

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