Cash Feeder Market Firmer Than Futures

As the bottom drops out of the feeder cattle futures market, analysts are looking at the cash market, wondering if things in the country are as bad as they are in the city.  The answer is not really.

Jan feeder cattle settled Tuesday at $219.60, its fourth straight limit-down day and its lowest point since the low of Sep. 22 when it was $218.80.  Mar feeders ended at $215.25, and Apr finished at $215.10.

Yet, the CME Feeder Cattle Index for the seven days ended Monday was $235.27 per cwt, down $2.21 from Friday, a $15.67 premium Jan’s settlement.

The Index is only off $9.72, or 3.97%, from its 52-week high of $244.99, set on Dec. 3, 2014, but the Jan futures contract has lost $17.52, or 7.39%, in just eight trading days.

And futures could easily trade even lower today.  The synthetic asking price calculated by ADMIS for Jan feeder cattle Tuesday was $215.50, which would widen the basis, or difference between futures and cash, even more.  For the Mar contract, the synthetic was $211.00.

“Size players are long a large amount of feeders, and they can’t get out,” one astute trader said.

A graph of weekly Southern Plains 700- to 800-pound feeder steer prices from the Livestock Marketing Information Center shows basically steady prices around $241.00 since a small retreat from record highs set the second week of October at $249.56 per cwt.

The basis between $241.00 and Tuesday’s Jan futures contract settlement is $21.40.  The five-year average basis is a minus $0.02 and last year was a minus $1.39, according to the LMIC.

However, the LMIC calculations showed a widening basis with the nearby futures contract beginning in early August.  It has remained unusually strong ever since.




The basis for live cattle also widened Tuesday with a limit-down settlement.  Dec ended at $158.97 per cwt, down $3.00, below last week’s cash trade at mostly $164 live and $253 to $258 dressed.

Cash cattle prices are expected to decline again this week as demand for expensive cuts of beef slips seasonally.  Cattle prices fell $4 to $5 per cwt on a live basis last week to mostly $164, and given Tuesday’s limit-down session and this week’s larger feedlot showlists, they may drop again this week.

ADMIS’ synthetic asking price for Feb live cattle futures is $158.35, compared with the Dec settlement of $158.97.

“Cattle look weak, just following the (feeder cattle) liquidation,” the trader said.

Packer buyers remained on the sidelines of the cash market Tuesday as futures prices fell.  Lower futures undermines cash prices, something they would relish, given what are thought to be hefty plant losses.

Asking prices were reported at $166 per cwt on a live basis and $260 on a dressed basis.

Many traders say they expect cash cattle prices to continue declining into January amid adequate short-term cattle inventories and weaker prices for competing meats.

Beef cutout values Tuesday dropped in the afternoon report from a mixed mid-morning report.  The USDA’s choice cutout ended Tuesday down $2.64 per cwt at $242.88 while the select cutout was down $0.42 at $234.25.

The choice/select spread is narrowing seasonally and was reported Tuesday at $8.64.  But that’s not to say it couldn’t narrow even more.  Last year’s end-of-year weekly spread was $5.80.

From there, the weekly choice/select spread usually falls to an annual low in late March, although it bottomed this year in the last week of January at $0.82.

Cattle slaughter this week through Tuesday was estimated at 226,000 head, slightly above the 224,000 in the same period last week and well off last year’s pace of 242,000 head.