Friday November 21, 2014

QUESTION OF THE WEEK

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Klassen: Yearling prices advance while calves hold value

Western Canadian yearling prices were steady to $3 per hundredweight (cwt) higher last week while calf prices were mixed. Alberta packers were buying fed cattle in the range of $118 to $119.25, up $2 from seven days earlier which spilled over into the heavier classes of feeder cattle.

Feedlot margins are now hovering near break-even but there appeared to be hesitancy when bidding for calves. Statistics Canada lowered the barley crop estimate and this caused feedlot operators to factor in a higher cost-per-pound-gain, longer-term. Weather conditions improved in the major feeding regions of Western Canada which was considered supportive to the overall feeder complex.

In central Alberta, a small group of exotic mix steers weighing 525 pounds sold for $157/cwt; Charolais-cross steers weighing 650 lbs. sold for $142. Lighter no-feature 625-lb. mixed red and black heifers sold for $135/cwt landed in a southern Alberta feedlot. Late in the week, 800-lb. black and red steers sold for $138 just south of Calgary.

Cow-calf producers need to be aware of the market conditions across Western Canada given the price variability in different regions. If cattle are selling at a certain price in southern Alberta, the price in Manitoba should only be discounted by the appropriate freight costs; otherwise there is an arbitrage opportunity. If the discount is larger than the freight spread, producers need to hold back on selling until the local market comes up.

Another factor that cow-calf producers should watch is the price for different weights. There was a jump in yearling prices this week while calf prices were steady. If forage is available, it may be more prudent to feed calves to a heavier weight or ship them to a professional backgrounding operation for controlled weight gain.

Interest rates remain near historical lows and a risk aversion strategy may be to put the calves in a custom feedlot for finishing. The cow-calf producer, backgrounding operator and finishing feedlot are all trying to make a margin; therefore, owing cattle in the second or final stage of feeding may add a few dollars to the bottom line. Producers can't drop the calves off at the local auction market and hope for the best. Those days are far gone.

-- 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 gklassen7@hotmail.com for questions or comments.


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