Economist: Futures Offer Volatile Market Relief

Cow/calf producers were advised last week to look more closely at the futures market as a place to hedge calves profitably and not be frustrated by the market’s gyrations.

If a cattle producer used feeder cattle futures exclusively as his or her only cattle price information that producer likely would be extremely confused, said Andrew Griffith, University of Tennessee Extension economist, in his Tennessee Market Highlights letter.

The reason that cattle producer is confused would be largely because of prices fluctuating widely without any solid information to cause such fluctuations, Griffith said.

The Jan feeder cattle futures contract, for example, has ranged from $138.18 per cwt in early April to $156.45 in early October with the price sitting in the mid- to upper $140s the past couple of weeks, he said.




With the wide price swings in futures markets, cattle producers may be feeling dizzy.

There have been significant price swings in the Jan feeder cattle futures contract since the beginning of October as the contract had a $13-per-cwt range during this time period, Griffith pointed out.  The tendency of most in the industry is to view the fluctuation in futures prices as a negative when if fact it could be viewed as very positive.

The reason most producers view futures price fluctuations as a negative is because a downward move in the futures generally has a bearish effect on cash selling prices, which means fewer dollars for producers at sale time, he said.

However, that is negative for producers only if prices fall before a producer markets his or her cattle, Griffith said.

Alternatively, an increase in futures just prior to marketing cattle could result in greater revenue, but a producer simply being at the mercy of the market, given its ups and downs, is not a favorable marketing strategy, he said.




Cattle producers should not look at the opportunities offered by the futures market to hedge cattle sales at profitable levels, Griffith said.

In the case of Jan, there were 17 days in which the contract traded above $153 per cwt, he said.  Only one of these days had the highest price, but a producer does not have to hit the very top but rather lock in a profit.

That is easier said than done as no one wants to miss out on the market moving higher, Griffith said, but there are plenty of complaints when the market moves lower.  The market almost always provides a favorable marketing opportunity if one will just start looking for it.




Cash cattle traded last week early at $114 per cwt on a live basis, steady with the previous week, and at $180 on a dressed basis, up $2 to $5.  However, the bulk of last week’s action took place Wednesday and Friday at $116 to $117 per cwt live, up $2 to $3, and at $180 dressed.

The USDA choice cutout Wednesday was down $0.72 per cwt at $213.28, while select was off $1.74 at $198.50.  The choice/select spread widened to $14.78 from $13.76 with 109 loads of fabricated product sold into the spot market.

The CME Feeder Cattle index for the seven days ended Tuesday, was $147.91 per cwt, down $0.26.  This compares with Wednesday’s Jan settlement of $147.70, down $0.72.