Cattle Market Outlook Debate

A debate is beginning to circulate in cattle trading circles that the beef market has reached, or nearly reached, support levels and will claw its way higher from here on, pulling fed cattle prices along for the ride.

The $179.99 per cwt low in the USDA’s reported boxed beef cutout level seems like it could be a market bottom since it is the 2016 low, and beef prices have a habit of picking up from here into late December.  However, beef prices aren’t following the 2010-2014 average.  They’re following last year’s trend, which rallied in October and November only to fall to the annual low in late December.




A Seeking Alpha article by noted market analyst Andrew Hecht said fed cattle prices in October dropped to $94.30 per cwt, a decline of about 45% from the highs and the lowest level since 2010.

A 2012 drought across the Plains brought cattle to market early resulting in a beef shortage that rallied cattle to record highs in 2014, Hecht said.  Since then, the higher prices and a return of rain resulted in an increase in herd sizes.

At the same time, four straight years of bumper grain crops caused feed prices to fall, allowing the industry to grow and mature cattle to appropriate weights for processing, Hecht said.

After this year’s grilling season, fed cattle did something it had not done since 2010, he said.  Prices fell to less than $1 a pound.  There now is support at the $80 level, which the market has not tested.  Instead, Dec cattle futures prices have bounced back to around $1.04.




Live cattle futures prices are in a state of backwardation, meaning deferred futures contracts are lower in price than the nearby contracts.  Trading textbooks say this is because the market wants the commodities more now than they will in the future.

But backwardation also can mean the market feels supplies will be greater in the future than they are at present, and that with relatively stable demand, the larger supplies should force prices lower in coming months.

Traders say they think USDA data point to higher supplies in coming months as the cow herd continues to grow and produce more calves that eventually wind up in the feedlots and going to slaughter.

Hecht also sees export demand issues for beef and cattle markets.

Indonesia, the world’s fourth-largest population with more than 258 million people, has a growing economy that is feeding a demand for red meat.  It is a Muslim country, so pork is off the table.

Indonesia has imported cattle from Australia, the largest producing country in the region, he said.  But frozen buffalo meat from India as suddenly become available legally at half the price.

Greater competition for Australia means the same for the US.




Cash cattle markets Tuesday were quiet.  Traders await today’s Superior Auction with expectations for prices to lose $1 or so.  Cattle sold last week at mostly $105 live and $162 to $164 dressed.

The USDA’s choice cutout Tuesday was $1.93 per cwt lower at $185.34, while select was off $0.38 at $171.94.  The choice/select spread narrowed to $13.40 from $14.95 with 108 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $126.46 per cwt, unchanged from a revised Friday report.  This compares with Tuesday’s Nov settlement at $124.40, up $0.32.