Cattle Prices: Wait or Sell?

The Government of Canada is committed to supporting the livestock sector in gaining and maintaining access to markets by leveraging Canada’s reputation for quality and safety,” Malpeque said. “This investment will help ensure that Canadian sheep and goat producers have a plan in place to help meet buyer and market demands."

Prices are down significantly from last year and given more abundant feed supplies, some producers are considering holding onto their calves instead of marketing them. But that retained ownership comes with risks.
Brian Perillat, manager and senior analyst with Canfax, says that markets are still in a downtrend, and cattle futures continue to point lower in 2017.

“You’re basically speculating on hitting a bottom between now and when you want to sell those backgrounded calves,” Perillat says. “And a lot of guys have been fighting the market for two years and losing a lot of money doing it, so that’s the risk.”

Current market conditions and feeding costs add up to negative projected margins on backgrounding calves, he adds.

“The reality right now is there’s no real sign these futures have bottomed. They just keep slipping lower," Perillat says, adding there are many hogs on the market right now too. "...There’s just a pile of red meat on the market and continues to pressure prices lower.”

There may be a blip higher heading into the November-December months, when cattle numbers should tighten.

“Seasonally, we’ll have less fed cattle around. Packer margins have been positive... But looking down the line into 2017, we’re looking at larger cattle supplies and probably bigger pork supplies again. We’ll get some bounces in here, but likely the long-term lows could be a way off yet.”

For producers who do decide to keep some calves, he suggests they take any higher price movements they can. He stresses a sudden, significant rebound isn’t in the books. The Canadian dollar’s direction is another unknown quantity, Perillat adds.

“There’s no picking the bottom on these cattle futures. You’re just as likely to guess where the dollar’s going.”

There are, however, risk management strategies producers can take to protect themselves from a surging Canadian dollar.

“You buy a call option and if it goes up, you’re protected, and if it goes down, you get the benefit," Perillat says.

Source: Meatbusiness