Feeder Cattle Volatility Rising

Along with higher cattle and feeder cattle prices comes increased volatility, which can increase premiums on puts and calls in the options market, but at least one agricultural economist says they still are reasonable.

Writing for the Livestock Marketing Information Center’s “In the Cattle Markets,” Brian Williams, assistant extension professor of economics for Mississippi State University, pointed out that prices for feeders are “way up from late March.”

Oct futures hit a high of $159.82 per cwt on May 4, a far cry from the low of March 3 when it was $121.62.




With the quick run-up in prices, the volatility naturally rises, too.  Williams called it “substantial.”

There have been several days where futures prices were limit up or limit down just in the last few weeks.  He said such sharp moves can put cattle producers on the edges of their seats.

Other traders have observed that nervous producers and other traders tend to make quick, knee-jerk market decisions, which can increase market volatility.




In the latest market jump, beef and cattle demand has been very strong as supermarkets fill their shelves in preparation for the Memorial Day holiday weekend, Williams said.

There remains some concern, however, as to whether the higher-priced beef can keep pace with cheaper pork and poultry products, he said.

Other traders observed that consumer shifts in buying of beef, pork or chicken often hinge more on spendable income than they do on relative price.  But the fact that relative prices at the meat counter do influence sales makes it difficult to assess whether consumer changes in buying preferences are the result of price points or spendable income points.

The fundamental tug-of-war, combined with profit-taking activities from those who are long the futures market are the main drivers in the increased volatility, Williams said.




Increased risk usually is associated with increased reward, read it higher prices, he said.  For most of this year, volatilities for the nearby feeder cattle futures contract have hovered in the 10% to 20% range, which actually is low when compared with volatilities over the last few years.

In 2016, volatilities dipped below 15% for a couple of weeks in the spring and was above 20% for much of the second half of the year, Williams said.  As 2015 came to a close, volatility topped 30%.

At 28%, the current volatility is at its highest since the close of 2015 and the first week of 2016, he said.

“In the grand scheme of things, there really isn’t anything too alarming about the increase in volatility over the last couple of weeks,” Williams said.  “Volatility is higher when compared to the last several months, but is still reasonable when compared to historical levels.




After trading on the livestock exchange Wednesday at an average of $138.40 per cwt on a live basis, down $1.75 from $140.15 a week earlier, fed cattle began to trade in the Plains.

Cash cattle traded at $138 to $138.50 per cwt live on Wednesday, but the volume came at $138, down $2 to $3.50.  Thursday, more traded down to $137.

Dressed-basis trade was down $9 to $10 at $220 per cwt.

The USDA’s choice cutout Thursday was up $2.28 per cwt at $246.86, while select was up $2.04 at $226.66.  The choice/select spread widened to $20.20 from $19.96 with 82 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $145.50 per cwt, down $2.16.  This compares with Thursday’s May settlement at $142.37, down $2.12.