Is 2016 Cattle Low In? Maybe

The annual low for cash fed cattle prices may be in.  If it isn’t, the low is likely to come in mid-December.

The USDA’s Agricultural Marketing Service 5-market average price for fed steers two weeks ago was $105.02 per cwt on a live basis, down $4.66, or 4.25%, from $109.68 the previous week.

The 2010-2014 average USDA five-market weekly price for fed steers has the annual low coming in the last week of May at $117.84.

Following the five-year average low in May, fed steer prices tend to work higher slowly, punctuated by a noticeable dip in early December.  This coincides with a short boost in supplies and a decline in beef buying by retailers and restaurants.

Last year, a five-market average price for fed steers set a late-September low of $117.71 per cwt, followed by a sharp jump to $136.22 the last week of October, up $18.51, or 15.7%.  From this peak, prices declined to an annual low of $116.64 the second week of December.

 

THE CATTLE CYCLE

 

The normal trend for fed steer prices to hit an annual low in May was overshadowed by the cattle cycle and supply.  The 2010-2014 average price line was the last few years of a declining US cattle herd.

Prices for feed inputs fell after rains rejuvenated drought-parched pastures, and heifers began to be retained for breeding, pulling fed cattle numbers down and boosting the price.

But as feedlot populations grew, prices for fed steers began to fall, and this is the general, longer-term trend seen in fed steer prices over the last two years.

If fed steer prices follow the five-year average from here on, the low was set last week at $105.02 per cwt, but if they follow the trend of last year, the annual low is more likely to come in mid-December.

Cattle hedgers will want to keep an eye on October prices.  If last year’s 15.7% fall increase is followed and the early September price was the fall low, cash feed steer prices may peak around $121.51 before falling off into a December low.

 

ANOTHER SCENARIO

 

The alternative is that the $105.02 price was not the fall low and that last week’s jump was just a head fake.  If this is the case, the fall low is still out there.

The most-active Dec futures contract is showing signs of tiring after a nine-day rally.  The gains stalled on Monday with a “dark cloud cover” on candlestick charts Monday followed by a “spinning top” on Tuesday.  The dark cloud cover indicates a possible change in direction, and the spinning top shows trader indecision.

So far, the market has not confirmed the implications of either formation in that no major moving average has been violated.  Traders could ignore the last two days and keep prices moving up, especially if cash markets provide bullish signals.

 

CASH CATTLE MARKETS QUIET

 

Cash cattle markets Tuesday were quiet with asking prices mostly up $5 per cwt at $115 on a live basis and $175 to $177 dressed.  Estimated feedlot showlists are lower, which could increase seller footing in price negotiations.

The USDA’s choice cutout Tuesday was $0.05 per cwt lower at $185.50, while select was up $0.78 at $179.95.  The choice/select spread narrowed to $5.55 from $6.38 with 116 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $134.55 per cwt, up $0.41.  This compares with the Sep settlement Tuesday of $135.32, down $0.12.