Historical basis data indicate the nearby Apr futures contract may have little room to grow while the Jun contract may be too high, and cash prices this week have another level of pressure.
The 2010-2014 fed steer basis for Kansas cattle, or the difference between the live cattle cash price and the futures contract price, for the Apr contract for this week is a plus $1.83 with a standard deviation of $1.11, according to calculations done by the Livestock Marketing Information Center. This means cash prices normally are above the Apr futures contract by this amount in this week.
Calculated against the most-active Jun contract, the five-year average fed steer basis basis this week is $6.23 with a standard deviation of $2.77.
The basis last week against the Apr contract was $0.82, just below the standard deviation range for this contract, which would come in at $0.84.
The basis last week against the Jun contract was $10.86, well above the standard deviation from the five-year average, which would top out at $9.68.
This means the nearby live cattle futures contract Friday was close to where it should be as it nears expiration on Friday, April 29. It could have gone a little higher, but it really didn’t have to since the basis with the Apr contract this week is $1.83 with a $1.11 standard deviation.
FUTURES NOT PLAYING NICE
However, the Apr contract has declined this week, closing lower each day and filling a gap on daily charts left open on Friday.
The contract also ran into technical resistance at the 14-day moving average. So if technical resistance is taking the lead, cash prices will have to decline if a normal basis is to be maintained.
That doesn’t mean cash will decline. After all, the basis this week over the last five years has been as narrow as $0.73. It just means the tendency is there.
So far this week, the USDA has reported only 111 heifers selling at $130 per cwt on a live basis. Packer buyer bids were reported Wednesday at $131 to $132 as futures decline. Asking prices of $136 to $138 now seem almost irrelevant.
CASH CATTLE QUIET
Cash cattle markets remained quiet Wednesday as packer buyers showed little interest in bidding. Asking prices were around $136 to $138 per cwt on a live basis and $218 or more on a dressed basis while bids were reported at $132 to $133 live and $215 dressed.
Business last week was at $132 per cwt up to $136 on a live basis with most around $133 to $134, steady to up $2. In dressed markets, cattle traded at a steady $214 to $216.
The USDA’s choice cutout price Wednesday was up $2.90 per cwt at $222.21, and select was up $2.89 at $212.53. The choice/select spread widened to $9.68 from $9.67 as 95 loads of fabricated product were sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $158.02 per cwt, up $0.34. This compares with the Apr CME settlement Wednesday of $154.80, down $0.47.