It looks like live cattle futures deliveries early next month may be limited to non-existent, a market analyst suggested.
The weekly average five-market fed steer price from the USDA last week was $176.77 per cwt, while the Dec futures settlement price Tuesday was $171.85, for a basis (cash minus futures) of $4.92. With cash prices being positive to futures, no deliveries would be expected unless the price relationships change, the analyst said.
Even when the basis level is minus, deliveries may be minimal, the analyst said. Cattle feeders typically want the futures market to pay for the trouble of delivering cattle to a futures market buyer.
After all, the delivery process is quite narrow and regimented. First of all, delivery must be made at specified locations scattered around the Plains states. They can’t be delivered at the feedlot where non-delivery transactions are done.
At the delivery site, the cattle must be inspected to make sure they live up to the contract’s specifications. This means the cattle must be sorted to make up a deliverable package, and any cattle that don’t make the cut must be sold some other way than by futures delivery.
BASIS COULD REMAIN POSITIVE
As the markets move into December, it is common for the basis to remain positive. A spreadsheet of weekly basis levels going back to 2018 supplied by the Livestock Marketing Information Center in Denver showed that basis levels during the first half of the month were slightly positive in most years.
The 2017-2021 average basis level for the week ended Dec. 2 was a positive $0.75 per cwt with a standard deviation of $2.65, the LMIC spreadsheet said. Last year, it was a positive $2.10 per cwt.
The odd year out was 2019 when it was a minus $2.43 for that week.
On average, the weekly basis remains slightly positive through the middle of the month when it turns slightly negative, according to LMIC data.
2023 DIFFERENT
However, 2023 has been different for the last couple of months. Weekly basis levels this fall have been more positive than the 2017-2021 average and have been positive all through November when the five-year average shows they typically are negative.
For instance, the last week of October the basis level was a positive $4.98 per cwt when the average was a minus $3.43; for the week ended Nov. 4, the basis was a positive $1.28 versus the average of minus $1.93; for the week ended Nov. 18, the basis was $1.96 when the average was a minus $1.19.
So, with the basis running hot, it seems that something significant would have to change in the markets to expect heavy deliveries, the analyst said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $176.88 per cwt to $178.41, compared with last week’s range of $177.68 to $180.99 per cwt. FOB dressed steers, and heifers went for $279.09 per cwt to $280.21, compared with $279.82 to $284.01.
The USDA choice cutout Tuesday was up $0.92 per cwt at $298.17 while select was off $1.45 at $266.35. The choice/select spread widened to $31.82 from $29.45 with 130 loads of fabricated product and 34 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.35 to $1.40 a bushel over the Dec corn contract, which settled at $4.51 1/2 a bushel, down $0.04.
The CME Feeder Cattle Index for the seven days ended Monday was $226.96 per cwt, down $3.42. This compares with Tuesday’s Nov contract settlement of $221.05, down $8.25.