Feeder cattle futures suffered a blow over a three-week period from the end of March through the middle of April in which many contracts lost $20 to $30 per cwt. Since then, the markets have regained $10 to $15.
Andrew Griffith, agricultural economist at the University of Tennessee said in a letter called Tennessee Market Highlights, that the changes in cash prices at local auctions have not been as pronounced as the futures market, but they are fluctuating enough to influence marketing and purchase decisions.
BE POISED FOR MARKETING DECISIONS
From a marketing standpoint, producers must be ready to act on advantageous prices offered on the futures market, Griffith said. For instance, the summer and fall feeder cattle contract prices likely will move back toward their $270-plus price level.
If that is a price level a cattle producer can make money with, then it would be appropriate to hedge the sale of those cattle or purchase LRP insurance, he said. The market could continue higher, but making a profit is the goal.
On the purchasing side, buyers need to be thinking in a similar manner as sellers, Griffith said. If the futures market offers a purchasing opportunity that may be advantageous, a move must be made.
However, the buyer also may need to take a selling position of some sort to lock in a certain margin on those cattle, he said. This is called proactive marketing as compared to reactive marketing.
DON’T OVERPLAY YOUR HAND
Are these cattle prices going to stay up? How high are they going to go? What does this mean for people buying cattle now and those buying at potentially higher prices? These are the multimillion-dollar questions that if answered correctly could result in profitable decision making, Griffith said.
However, from the broad perspective, the best thing for cattle producers across the entire complex would be a plateauing of prices at some level that does not squeeze the profits out of any sector of the business and put a strain on the consumer, he said. What that price level is for a given weight class is not clear. Supply and demand will dictate price movements.
What could be a concern is an outside factor influencing the market that results in producers making shorter term decisions than they would typically make.
Cattle prices are going to stay elevated, but how high they will go is unknown, Griffith said. As it relates to buyers, the higher investment may cut into the number of cattle purchased.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $182.61 per cwt to $186.75, compared with last week’s range of $181.32 to $187.00 per cwt. FOB dressed steers, and heifers went for $286.41 per cwt to $290.67, compared with $285.91 to $290.32.
The USDA choice cutout Wednesday was down $0.83 per cwt at $293.54 while select was off $1.88 at $288.07. The choice/select spread widened to $5.47 from $4.42 with 160 loads of fabricated product and 27 loads of trimmings and grinds sold into the spot market.
The weighted average USDA listed wholesale price for fresh 90% lean beef was $350.09 per cwt, and 50% beef was $76.29.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.36 to $1.44 a bushel over the May corn contract, which settled at $4.3943 1/4 a bushel, up $0.03 3/4.
The CME Feeder Cattle Index for the seven days ended Tuesday was $247.06 per cwt, down $0.12. This compares with Wednesday’s May contract settlement of $241.42, down $3.15.