Policy changes and a headline-generating president dominated live and feeder cattle futures this year, but the bloom now seems to be off the rose, at least for now.
Weekly USDA-reported cash fed cattle prices are near the tops of the year and seem resilient, but nearby futures prices far outstripped what packer buyers were willing to pay, so Dec had to come down to converge with the cash reality.
PROBLEMS
Policy shifts in the form of tariff reductions and border closings or reopenings still could crop up and throw the markets into a tizzy. Weather and natural disasters also could throw a monkey wrench into the works, but the bottom line is that cattle numbers are tight, US consumers like good beef, and cattle feeders need to add weight to maximize per-head returns.
And, when the Mexican border does reopen, there won’t be a flood of feeder cattle coming in to the US market, a market analyst said in an email. It will be a trickle, since only so many can pass border inspection in a day.
Another analyst said the Mexican market has changed since the border was first closed to block the admission of New World Screwworm into the US. Now, there is a home for many of the feeder cattle there.
FUTURES MARKET GAPS
Technically, the Feb futures contract has some upside draw. Since the contract peaked on Oct. 16 at $250.17 per cwt, the drop left two gaps in the daily bar chart.
Another gap, called an exhaustion gap, is possible, but it doesn’t always come. If it does, it’s likely to show up around $217 per cwt, or roughly the same distance as the second gap was from the first. Such gaps tend to announce the end of a move up or down.
Whether an exhaustion gap comes or not, markets like to fill their gaps, so there is a draw to fill the two gaps left on the Feb contract’s daily bar chart. The first gap was between the Oct. 16 low of $248.22 per cwt and the succeeding high on Oct. 17 at $247.12. The second gap was from the Oct. 24 low at $233.42 per cwt and the succeeding high of $232.30 on Oct. 29.
Gaps are funny things, though. While the market may want to fill the gap, getting through it is like walking through mud – you could lose an overshoe in the suction.
But in the uncertain policy market, volatility will show up big time, market analysts say. Open interest is relatively large, and futures could overshoot cash markets to the downside. Cash could gain the upper hand on futures in coming months.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $237.00 per cwt to $237.00, compared with last week’s range of $230.08 to $238.48 per cwt. FOB dressed steers and heifers went for $367.74 per cwt to $368.67, compared with $363.43 to $373.39.
The USDA choice cutout Monday was up $0.92 per cwt at $377.32 while select was down $1.39 at $359.70. The choice/select spread widened to $17.62 from $15.31 with 63 loads of fabricated product and 15 loads of trimmings and grinds sold into the spot market.
The USDA-listed the weighted average wholesale price for fresh 90% lean beef as $405.57 per cwt, and 50% beef was $182.01.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.05 to $1.20 a bushel over the Dec corn contract, which settled at $4.29 3/4, up $0.02 1/2.
The CME Feeder Cattle Index for the seven days ended Friday was $344.37 per cwt, down $1.59. This compares with Monday’s Nov contract settlement of $336.65, up $9.25.