In general, feeder cattle futures prices did decline with the Nov futures contract as expected after the CME Group’s changes to the contract, but the cattle industry seems to be taking it in stride and is even retaking some ground.
“Nobody is talking about it,” said Nevil Speer, vice president of US operations for AgriClear Inc., a wholly owned subsidiary of TMX Group Limited.
After the CME Group upped the weight parameters for CME Group feeder cattle contracts and the CME Feeder Cattle Index used to settle them by 50 pounds with the Nov contract, the futures price for feeder cattle was expected to decline, reflecting the heavier cattle.
Weight parameters for CME feeder cattle futures contracts and the Index, rose from a range of 650 to 849 pounds to a range of 700 to 899 pounds starting with the Nov contract.
And the Nov futures contract declined from its peak of $143.67 per cwt on Aug. 10 to its most recent low of $114.65 on Oct. 13.
But since that mid-October consolidation phase, the Nov feeder cattle contract rallied sharply to a high of $127.35 per cwt on Nov. 2. At that point, the contract lost ground with some investor profit taking before expiring on a volume-weakened rally attempt.
JAN KEEPS RALLYING
A better contract to look at for a continued reaction to the CME Group feeder cattle contract changes would be the Jan delivery month. This contract also dropped sharply from its Aug. 10 peak of $139.40 per cwt to its Oct. 19 low of $110.65.
However, the contract kept rising as the Nov contract faded into history.
From its October lows, the Jan contract has risen to Wednesday’s high of $128.72 per cwt and appears to have every intention of rising further.
Cow/calf producers are being warned by market economists to beware of using historical basis data when making futures market hedges. The basis was expected to widen as futures prices dropped and cattle weights increased.
In general, the weekly basis level calculated and maintained by the Livestock Marketing Information Center widened against the Nov contract. There were a few days when it didn’t, but overall, it behaved as expected.
The basis with the Jan contract, however, seems schizophrenic. One week, it’s up over the 2016 contract by $0.48, and the next week, it’s below the 2016 level by $5.13. That’s followed by a week when it is ahead of last year by $0.83 and then falling behind by $10.53.
Over time, the feeder cattle basis is expected to show a more consistent widening, and feeder cattle futures to show a more consistent lower normal price range. This doesn’t mean the markets have gone bad, the lower per-pound feeder price is just reflecting the larger calves.
CASH CATTLE MARKETS QUIET
After selling in the Superior auction Wednesday at $112.75 to $114.25 per cwt in the south and at $110 to $113.25 in the north, cash action got underway at $113.25 to $115.50 on a live basis. No dressed-basis trades were reported, although bids were seen at $175.
Last week cattle were up $4 per cwt at $109 to $113, mostly $112. Dressed-basis prices last week were steady to up $2 at $170.
The USDA’s choice cutout Wednesday was $0.39 per cwt higher at $189.95, while select was down $0.11 at $172.77. The choice/select spread widened to $17.18 from $16.68 with 95 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $129.18 per cwt, down $1.00. This compares with Wednesday’s Jan settlement at $128.42, up $1.45.