Cattle futures prices have been quite volatile for several months, leading to anecdotes about large margin calls, said Matthew Diersen, risk and business management specialist, at South Dakota State University.
Diersen made his observations known in a letter from the Livestock Marketing Information Center called In The Cattle Markets.
From a risk management perspective, that volatility generally meant producers were hedged, and then prices increased, Diersen said. It also brought a few hints at missing out on higher prices. Here are a few aspects that warrant attention going forward.
CASH MARKET LESS VOLATILE
The cash cattle market has not been quite as volatile day-to-day as the futures market, he said. A lot of calves have traded at very high prices, presenting a lot of risk to the buyers.
Feeder cattle futures have seen daily price chart gaps and limit moves during this latest stretch, Diersen said. But feeder cattle contracts are cash-settled.
The feeder cattle index peaked on Oct. 16 at $376.61 per cwt, a couple of weeks ahead of the October contract expiring, he said. The new nearby delivery month is the January 2026 contract, which will not expire until the end of January.
Last week, that contract briefly traded below $300.00 per cwt, Diersen said. For those trying to hedge feeders in the short run, convergence will need to be considered.
REPLACEMENT HEIFERS NOT VOLATILITY IMMUNE
Replacement heifers were not immune to high prices, Diersen said. Heifers generally trade at a sharp discount to steers of the same weight in feeder cattle markets, reflecting slower rates of gain and lighter eventual finishing weights.
Replacement heifers, however, can break that pattern and be priced at a premium to steers, especially late in a cattle cycle, he said. From late October through much of November, heifers described as replacements traded at a slight premium to steers across South Dakota.
The comparison was made when looking at Medium and Large No. 1 animals weighing 500-600 pounds, Diersen said. Such heifers will not have a marketable calf until 2027, reflecting substantial investment risk and widespread optimism about continued profitable calf prices. Other heifers traded at a $50.00-per-cwt discount to steers.
OPTIONS INSULATED
Market volatility was slow to show up in options, where the implied volatility remained low until the sharp declines in live and feeder cattle futures prices, he said. The CME Group’s CVOL, which measures the implied volatility of nearby contracts, had a small jump in early September and then declined until moving sharply higher in November.
Now there are lower prices and higher volatility levels, making good floor prices much more difficult to achieve, Diersen said. Livestock Risk Protection would be seeing similar effects.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $218.97 per cwt to $227.00, compared with last week’s range of $218.52 to $225.00 per cwt. FOB dressed steers and heifers went for $339.66 per cwt to $354.27, compared with $331.92 to $349.49.
The USDA choice cutout Wednesday was down $1.68 per cwt at $359.36 while select was down $3.15 at $344.88. The choice/select spread widened to $14.48 from $13.01 with 133 loads of fabricated product and 19 loads of trimmings and grinds sold into the spot market.
The USDA-listed the weighted average wholesale price for fresh 90% lean beef as $396.35 per cwt, and 50% beef was $152.64.
The USDA said basis bids for corn from feeders in the Southern Plains were steady to down $0.05 at $0.90 to $1.10 a bushel over the Mar corn contract, which settled at $4.44 1/4, down $0.03 3/4.
No live cattle contracts were tendered for delivery Wednesday. Fifteen were retendered at one, and 15 were retendered at two. Both were reclaimed.
The CME Feeder Cattle Index for the seven days ended Tuesday was $344.03 per cwt, down $0.47. This compares with Wednesday’s Jan contract settlement of $338.37, up $2.87.