Basis Narrowed

By Cassie Fish, http://cassandrafish.com

The most notable development this week in the cattle futures trading world is a classic example of cash being stronger than futures. Negotiated cash cattle prices surged to a new high in this bull market, the highest price since 2015. Packers are wisely keeping inventory around them, buying over 100k head last week and this week’s negotiated total at 92k head. The rise in cash prices has been measured and methodical. 

Also this week, CME live cattle futures have chopped sideways to lower and at this writing, most active April LC is lower on the week. Futures act tired but could just be catching their breath before moving higher again. On the other hand, cash could continue and futures prices for April, June and August could slip solidly discount to cash.  There have been other times in history when cash prices have accelerated and futures prices have been a spectator not a participant. To a futures trader, this week’s action is a failure on good news.

Even though the cattle market is in a long-term bull, after multiple obstacles the last couple of years, the drought has forced feeder cattle into feedyards and there are a record number of cattle on feed for any time in history. Many of those cattle have out-dates beginning in May and stretching until fall. Cash prices will have a classic ‘spring high to summer low’ break that will garner the market’s full attention at some point in the next couple of months. This possibility is keeping short hedgers on their toes as no one wants to get caught unhedged going into summer.

Remarkably and counter-seasonally, steer carcass weights are advancing, the USDA reporting the most recent data yesterday at 930 pounds, 1 pound below the all-time high for any time which was achieved in October 2020. Great feeding weather and a premium futures market are at least two of the reasons. But it is a fact that cattle continue to get bigger as a long-term trend.

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