Cattle markets may be in for an uphill battle as slaughter-ready feedlot supplies mount and demand fades, and the current futures price structure may be overdone, analysts say.
Currently, live cattle futures prices rise for each successive delivery month through Apr and then drop sharply, and traders are concentrating on moving positions into the Feb contract from the soon-to-expire Dec contract.
However, Feb currently is about $2.30 per cwt over the Dec, and the Apr position is $2.40 above Dec. Jun’s value drops a sharp $8.68 at the height of the grilling season.
Hog markets also seem overpriced to some, even with predictions for a market low sometime in the next couple of weeks.
In fact, to some, all commodity markets except corn and soybeans appear weak with the US dollar up and restricting trade. Corn and soybeans are up as the Environmental Protection Agency late Monday boosted its biofuel requirements for the next two years.
THE (UN)SESONAL PROBLEM
While wholesale beef and cattle prices tend to rise in the fall and early winter as holiday demand kicks in, this year’s response to holiday demand has been languid and disappointing to those who were counting on the season for a boost.
A graph shows the decline of choice boxed beef since May. Prices now are well below last year, even though they remain above the 2009-2013 average.
An October price boost has given way to a decline in November, and last week’s price of $203.77 per cwt is only slightly above the $203.67 low achieved the first week of October.
But all of that is pretty well known. The rub comes with last week’s apparently light-volume cash cattle sales.
Last week’s cash trading took place after the futures market closed on Friday, and with the Thanksgiving Day holiday, fewer traders were available to move cattle. But the upshot was that few cattle traded, swelling this week’s estimated feedlot showlists in every major feeding state except Colorado.
The timing also was important. With a low-cash-volume week coming at the end of a month, packer buyers didn’t have to be in a big hurry to buy cattle since they have access this week to December’s contracted and formula cattle.
Add to that their growing reluctance to kill overly fat cattle and burdensome supplies of frozen beef, the conclusion could be drawn that packers intend to work hard on their own or contracted supplies in December to reduce carcass weights and beef production. Feedlots would then be prompted to become more aggressive about moving their own heavy-weight cattle, which means lower prices.
CASH FED CATTLE MARKETS QUIET
Cash fed cattle markets Monday were quiet, with no bids or offers reported. Last week, Kansas sold around 5,000 head at $124 to $127 per cwt, and about 4,000 head traded in dressed-basis markets at $195. Both were about steady with the previous week.
Wholesale beef prices Monday were mixed after being higher at midday. The USDA choice cutout was $205.65 per cwt, up $1.25 on the day, and the select cutout was $194.86, off $0.64. The choice/select spread widened to $10.79 from $8.90 on Friday, and there were 61 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Friday was $173.80 per cwt, up $1.64. This compares with the Jan settlement Monday of $162.75, down $3.27.