Cattle Basis Holding “Huge” Premium

The weekly average cash cattle basis continues to run at a significant premium, easily eclipsing the basis in the previous five years.

It means something is out of whack.  Either cash prices are too high in relation to historical norms or futures prices are too low, based on the same historical norms.  Either futures prices need to come up, or cash prices need to come down to bring the basis back in line with normal.

Of course, the basis does not drive the futures or cash markets, it’s only a measure of how their price points compare with previous years.  But it does reveal a continued lack of faith in the cash market by futures investors.

The Livestock Marketing Information Center compiles the data from the CME Group’s futures contract closes and compares the data with a weekly weighted average cash cattle price to arrive at an average weekly basis.  The basis is defined as the average cash price in a given week minus the average futures closing price.

Last week, the basis with the Jun futures contract was a plus $16.56.  That seems a little wide at first glance since the nearby futures contract must converge with the cash price before it expires on the last trading day of the month.

But historically, it’s a huge basis, market analysts said.  The calculated basis was $9.96, or 150.9%, of the $6.60 2011-2015 average.  It was even outside the limits of the standard deviation of the average, which was $2.36.

And the basis with the Jun contract has been extremely large for the last six weeks.  The LMIC data shows the basis over this period running from $13.59 the week ended April 15 to $17.84 the week ended April 29.  This compares with a five-year average that runs from $6.60 the week ended May 6 to $8.07 the week ended April 15.




Last week’s $16.56 basis was $9.30, or 128.1%, above the $7.26 basis in the same week a year earlier.  And compared with the 2015 basis of $9.43, the largest in the six years shown by LMIC, it was up by $7.13, or 75.6%.

Basis levels with the Apr futures contract were not quite as stark as those with the Jun contract.  From the last week of January through April, the basis ranged from a positive $2.67, the week ended April 22 to a positive $9.37 the week ended March 18.

The Apr contract average basis for the quarter ranged from a low of a minus $1.63 the week ended Feb 4 to a high of a positive $3.04 the week ended March 4.

The week with the widest basis came the week ended March 18 when the 2017 basis was $9.37, and the basis in the same week a year earlier was a minus $1.52.




After trading on the livestock exchange last Wednesday at an average of $140.15 per cwt on a live basis, up $9.01 from $131.14 a week earlier, fed cattle began to trade in the Plains.

Cash cattle traded at $140 to $142 per cwt live, but the volume came at $145 to $147, up $9 to $10.  Dressed-basis trade also was noted at $230 to $231, up $12 to $15.

The USDA’s choice cutout Tuesday was up $0.72 per cwt at $242.16, while select was up $0.14 at $223.03.  The choice/select spread widened to $18.55 from $18.55 with 82 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $147.73 per cwt, down $0.35.  This compares with Tuesday’s May settlement at $144.52, down $3.77.