Live cattle futures and cash markets established new highs in April, and markets remain strong long term, but a continued rally through the year may not be in the cards, said Colorado State University Agricultural Economist Stephen Koontz, in a Livestock Marketing Information Center letter called In The Cattle Markets.
The April 2023 live cattle contract likely will settle above the prior record high and deferred contracts expiring in February, April and June of 2024 currently are trading above prior records, Koontz said. These prices are communicating the current strong demand and anticipated tighter future supplies.
The cash market is moving with futures and basis is even to modestly weak except for cattle grading over 80% choice, where the basis is very strong, he said.
FEEDER CATTLE WELL BELOW RECORDS
Feeder cattle futures, while strong, are well below record highs because of the limited forage supplies and high feedgrain prices, Koontz said. Nearby contracts are more than $200 per cwt, and deferred contracts into 2024 are around $230 anticipating tighter supplies and moderating feed market prices.
The cash feeder cattle market also is moving with futures, with the strongest basis in the smallest calves reflecting the likelihood of lower costs of gain, and herd building has yet to appear, Koontz said. Heifers are a strong proportion of the FI slaughter mix, and beef cow slaughter continues at a strong pace, all leading to the conclusion that higher cattle prices are yet to come.
HOWEVER
However, Koontz said he believes the rally is unlikely to continue for the rest, or even a portion, of the year. Spring’s seasonal price peak is likely soon.
Cattle and beef markets have persisted in a unique environment for the past two years, he said. Supply, demand and other market fundamentals routinely took a bit of a hiatus.
Beef production peaked in 2022, yet retail and wholesale prices were some of the highest, Koontz said.
Net beef exports have been reasonably strong but are unlikely to remain so in an elevated price environment, Koontz said. And, he expected less strength in retail and wholesale beef prices as outside influences moderate.
Packer margins currently incentivize slower kill rates, but long-term contracts and forward sales into spring challenge the inclination, he said. These factors will be headwinds that accompany tighter cattle supplies and long-term bullishness.
Longer term, the cattle market likely will have substantial strength but in the short-term relative protein prices may matter more, and disposable income may not be substantially better than the prior year.
Inflation and the economy are slowing. And the corn crop is not yet planted.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $177.67 per cwt to $179.28, compared with last week’s range of $174.86 to $184.47 per cwt. FOB dressed steers, and heifers went for $277.47 per cwt to $278.15, compared with $269.25 to $292.35.
The USDA choice cutout Monday was up $0.52 per cwt at $307.12 while select was up $0.90 at $288.70. The choice/select spread narrowed to $18.42 from $18.80 with 56 loads of fabricated product and 14 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were $1.55 to $1.65 a bushel over the Jul corn contract, which settled at $6.07 1/2 a bushel, down $0.07 3/4.
No live cattle futures deliveries were tendered Monday.
The CME Feeder Cattle Index for the seven days ended Friday was $202.24 per cwt, down $0.86. This compares with Monday’s Apr contract settlement of $202.55 per cwt, down $1.22, and May’s $210.75, down $1.65.