Feeder Steer Prices Falling; Still Well Above Year Ago

Feeder steer prices in the Southern Plains continue to fall rapidly, although they still have a long way to go before reaching year-earlier or average levels.

The USDA reported feeder cattle and calves weighing more than 600 pounds were mostly $5 to $15 per cwt lower last week than the year before.  In some instances, feeder cattle were down $20.

Market sources blamed the cascading futures market for undercutting cash cattle prices.

Live cattle futures have traded lower for eight of the last nine sessions, with the Feb contract staying below the declining four-day moving average for all but one session.  Nearby Feb settled Tuesday at its lowest point in five months to close at $153.05 per cwt, compared with the Aug. 27 settlement of $151.60.

Feeder cattle futures also have declined, although not as harshly.  The Jan contract, which expires Jan. 29, settled Tuesday at $214.47 per cwt, up $0.37 from the previous day but well off the Jan. 7 cycle high close of $225.65.

In contrast, the CME Feeder Cattle Index for the seven days ended Monday is $221.87, down $2.26, or 1.01%, from Friday’s.  The Jan contract is $7.40, or 3.45%, above the Index by which it is settled next Thursday.

The market has just over a week to close the gap, and with ongoing fund liquidation, seen as the driving force behind the weakening futures market, cash markets appear vulnerable to further price slide.

A graph from the Livestock Marketing Information Center clearly shows the current cash feeder cattle price decline began in December and continues into January.

The graph also points toward lower prices to come before working higher seasonally.

 

BEEF GAINING STRENGTH

 

Supporting the live cattle market is the strengthening beef market, which is showing seasonal strength, although at a steeper-than-normal rate.

USDA figures show the choice cutout value rose once the year-end holidays concluded.  Seasonal tendencies show the choice beef market likely will turn lower sometime soon, only to recover in late February or early March.

Rising beef prices and falling fed cattle prices support packers’ margins positively, but after losing money through most of the fall and early winter, they likely won’t turn aside from being tough negotiators for fed cattle this week.

 

FED STEER PRICES CONTINUE DECLINE

 

Already, there are reports of light trades in the Plains Tuesday at $159 to $160 per cwt on a live basis, down about $5 from the bulk of sales last week.

Seasonally, fed steer prices soften in January, only to rebound in February as retailers and restaurants begin gearing up for spring and fed cattle supplies tighten.  Last year, fed cattle prices rose through January before dipping in February.

With the fund selling in futures and lower cash sales this week, many traders are expecting further cash declines before the market turns higher into spring.