Cash cattle prices may be up this week as cash and futures try to converge, but then things become a little murkier.
Cash markets got a boost this week as the Feb contract moved higher. Traders with long positions as of the close of business Monday risk being delivered on, yet demand pushed them higher.
POSSIBLE SCENARIO
As first notice day for Feb deliveries nears, cash bids are going higher, and a few trades have occurred at slightly higher prices. Other sellers, though, are holding out for more, and if Feb retains its strength on Friday, they may get more money for their fed cattle.
That still might allow for some deliveries against the Feb contract next week, and deliveries have a tendency to pressure futures prices.
In addition, packer buyers have been booking cattle a couple of weeks out, and they may have enough inventory to restrain spot buying for a week or so, lending pressure to cash markets, in spite of Feb’s pull this week.
Lower prices for the Feb contract could lend pressure to the Apr contract, which currently is trading at a premium to Feb. This, in turn, could pressure cash prices in coming weeks, especially since boxed beef prices this week were showing signs of topping.
And, even though beef prices are giving some topping signals, they still are high enough to give packers calculated gross profits near $300 a head. History has shown that packers will kill all the cattle they can at such margins.
ANOTHER LOOK
All that works pretty well unless beef markets remain strong, whether domestic, export or both. If beef markets remain strong for the choice or prime beef US consumers are showing they want now, traders could see their way clear to assume any beef pressure now could be short-lived.
Additionally, with wholesale choice beef prices above last year and the 2015-2019 average, traders might feel the market has a little to give before they get worried about a protracted decline. Beef demand usually begins to pick up in late February as southern states warm up, and grilling becomes more of a thing. This demand heats up seasonally as warmer temperatures work their way north.
Such seasonal demand isn’t far away, so a short dip in prices might be seen as beneficial as a foundation for a coming uptick in buying interest.
Further, a sharp cold front moving across the Plains and Midwest this week could set cattle back enough to support prices as feeders try to recoup weight losses. This winter so far has been relatively mild for most areas with no lasting cold or storms. Forecasts call for lasting cold from this one.
CATTLE, BEEF RECAP
Fed cattle trading was reported this week at mostly $114 per cwt on a live basis, up $1 to $4 from last week’s range, and at $178 to $180 on a dressed basis, up $1 to $2.
The USDA choice cutout Thursday was down $1.03 per cwt at $234.25, while select was off $2.95 at $220.44. The choice/select spread widened to $13.81 from $11.89 with 104 loads of fabricated product and 28 loads of trimmings and grinds sold into the spot market.
The USDA reported Thursday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.00 to $1.25 a bushel over the Mar CBOT futures contract, which settled at $5.50 a bushel, down $0.02.
The CME Feeder Cattle Index for the seven days ended Wednesday was $136.27 per cwt, down $0.17. This compares with Thursday’s Mar contract settlement of $139.50 per cwt, up $0.97.