With the live cattle futures market reverting to building in a “carry,” cash cattle markets this week could be a bit higher.
A futures market with a carry is one in which successive delivery months are trading for increasingly higher prices, thus incentivizing owners to carry their commodity for future sale. This is the normal mode for agriculture futures. The carry usually does not pay for all of the charges associated with holding commodities off the market, but it provides enough to assure an orderly flow into the greater market.
For months, live cattle futures have been in an “inverted” position, one in which successive months were priced less than the nearer months. In such cases, producers have an incentive to sell their production sooner rather than later because the market is telling them cash prices likely will be lower in coming months.
Cattle feeders now have increasing incentive to hold cattle for future sale because the only months that are inverted are the Aug and Oct contracts, and then only by a thin margin.
In addition, this week’s estimated feedlot showlists, the list of cattle that feedlot managers intend to show packer buyers for prospective sale, are down in most major cattle-feeding states this week. This could give sellers extra leverage when negotiating with packer buyers.
FUTURES STRONGER ON CASH IDEAS
The live cattle futures market was stronger Tuesday amid ideas that higher calculated packer margins (if correct) would lead to ideas of strong cash cattle buying interest this week.
Traders may have a point. The Sterling Beef Profit Tracker, published by AgWeb, calculated beef packer margins for the week ending June 23 at $301.75 a head. While it’s almost certain this number is not exactly on point, it does show that average packer margins are most likely very strong giving them a good incentive to kill and process as many cattle as possible.
But Sterling’s calculated average unhedged feeding margins, at a plus $285.81 a head, were about a third lower than the previous week’s $401.06 as prices declined, providing market incentive to sell fewer cattle in order to support the market, especially as they see the futures market continuing to rebuild a carry. That is, unless they see further declines in cash prices in the near future.
But the lower showlists indicate cattle feeders are digging in their heels after weeks of aggressive selling got them very current with their marketings. They may feel they have time to wait on packers to open their wallets a bit more rather than remain the aggressive sellers they have been for the last few months.
CASH CATTLE QUIET
Fed cattle sales on the livestock exchange video auction last Wednesday were very limited. One lot sold in the south at $117.75 per cwt on a live basis, and one lot sold in the north at $117.25, down $1.50 to $2.00.
Cash cattle traded last week at $118 per cwt live, down $1 from the bulk of the previous week’s trade. Dressed-basis sales were at $188, down $1 to $2.
The USDA’s choice cutout Tuesday was down $2.30 per cwt at $215.24, while select was off $2.16 at $200.51. The choice/select spread narrowed to $14.73 from $14.87 with 101 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Monday was $149.16 per cwt, down $0.82. This compares with Tuesday’s Aug settlement at $147.25, up $2.57.