Cattle Market Moves Hard To Correlate

Southern Plains fed cattle prices last week jumped about $8 per cwt on a live basis, nearly matching the previous record, as beef prices moved higher and packers sought slaughter inventory.

The preliminary average price for Southern Plains fed cattle last week was $162.86 per cwt, compared with the previous cash high of $162.97 set the first week of August, according to the Livestock Marketing Information center.  A graph shows the reversal clearly, and the bounce tends to point toward higher prices this week just on momentum.

However, the market’s moves over the last four months have been difficult to correlate to the five-year average or to last year’s price moves.  Cattle prices made a counter-seasonal move higher over the summer with a small decline in July followed by the jump to the record in early August and then a three-week decline.

The average would point to a tendency toward nearly steady prices, and remembering that short-supply markets tend to be more volatile, it may be that the cash cattle market is already in a sideways mode, albeit with wider fluctuations.

 

BEEF PRICES REBOUND

 

Wholesale boxed beef prices bounced on Friday, although the weekly average was down from the previous week.  Friday’s gains were carried over into Monday with the USDA reporting the choice cutout value at $251.39 per cwt, up $2.72 from Friday, and the select cutout at $237.84, up $1.59.

Packers may have had enough orders on the books to suspect higher spot prices when they bid up for fed cattle last week, but more likely they were responding to (what are thought to be) profitable margins.  They also likely have beef orders on the books that need to be filled.

The weekly choice cutout value has a tendency to even out into the end of the year, along the same lines as the fed cattle price.  If there is an up or down “normal” it would be for an uneven price decline through September followed by a rise into November.  However, last year, prices rose on average from August into late October.

And as with fed cattle, this year’s short-supply market is much more volatile.  Summer’s prices rose contrary to last year and peaked just when they should have bottomed in August before the Labor Day holiday.

 

CHOICE/SELECT SPREAD FOLLOWING LAST YEAR

 

The weekly spread between choice and select boxed beef prices is widening seasonally and is following last year almost exactly.  Monday’s spread was $13.55, up from $12.42 on Friday and perhaps headed for last year’s secondary peak of $16.63, set the third week of September.

The five-year average spread value, however, shows the peak occurring the last week of November around $13.75.

The spread widens just as the percentage of choice carcasses in relation to select begins to falter seasonally.  As time progresses, there also is a subtle shift in advance orders for choice cuts in preparation for year-end holidays.

 

FEEDER CATTLE RISING

 

All that demand for fed cattle and beef is bleeding over into the feeder cattle market, which remains tight.  The CME Feeder Cattle Index for the seven days ended Friday was $225.41 per cwt, up $1.13 from the previous day.

Sep futures Monday settled at $227.15, a new contract high.  Oct also ended at a new contract high close at $225.92.

Further gains in feeder cattle are expected as supplies have no way of rising swiftly.