Feeder cattle market digesting many variables

Market Talk with Jerry Klassen


By Jerry Klassen, Columnist, Canadian Cattlemen

November 12, 2020


Iíve received many inquiries over the past couple of months about the market outlook for feeder cattle. Yearling prices have been very strong throughout the fall period trading at or above 52-week highs; however, prices for calves in the 500- to 700-pound weight category are down $10 to $20 from elevated levels during spring. In some unique cases, prices for 800-pound yearlings have been equivalent to 600-pound calves.


Cow-calf producers are flabbergasted at the abnormal price structure. Feed grain values and the expected price of the animal when finished are the two most important factors influencing the price of feeder cattle. In the previous issue, I discussed the barley fundamentals and how cattle producers can expect higher prices through the winter period. In this article, Iíll provide a brief overview of the fed cattle market which will help cow-calf producers understand the price discovery process for feeder cattle in each weight category.


First, itís important to realize that feedlot operators on both sides of the border are contending with a backlog of market-ready supplies. The difference is that the U.S. backlog will likely be cleaned up by mid-November. In Western Canada, the year-over-year increase in market-ready supplies will only be alleviated during the spring of 2021. At the time of writing this article, fed cattle prices in Nebraska were at a sharp premium to values in Alberta. The fed cattle set aside program has provided underlying support to western Canadian fed prices but feedlots with contracts south of the border have a competitive advantage over those operations selling into the domestic market. There have been some very strong basis levels for the first quarter of 2021. In the short term, some feedlots are quite current on production while others are severely backed-up with market-ready cattle. The severity of the backlog of market-ready supplies will continue to influence the individual feedlotís ability to purchase replacement cattle.


On a macro scale, the fed cattle market will be extremely volatile over the next 12 months. Below Iíve included the USDA estimates for quarterly beef production. There will be seasonal fluctuations in demand. However, itís important to realize that beef demand is inelastic; a small change in supply can have a large influence on the price...


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