Feeder cattle prices continue to be strong as summer nears the midway point.
Andrew Griffith, Extension ag economist with the University of Tennessee, says steer and heifer prices were up $2 to $3 last week in his local market as feeder cattle futures continue to move upward.
“Since the inception of the August 2018 feeder cattle contract, the contract price has traded in a range from a low of $135 per hundredweight on April 4 to a contract high of just over $159, which occurred November 2017,” he writes in his weekly market outlook.
“More recently, the August feeder cattle contract has been trading in the low to mid $150s, which is $15 to $18 higher than where it was trading two months ago.”
Griffith says the pattern is similar for fall and winter contracts. He suggests producers form some sort of risk management strategy to take advantage of these prices.
“Many livestock producers begin thinking about price risk management after prices have taken a plunge and are at a low spot,” Griffith says. “Alternatively, price risk management for marketing cattle or any commodity should be addressed when prices are strong.
“The current market is providing a favorable opportunity to lock in a profitable price or at a minimum set a price floor for fall and winter marketings.”
One concern, he says, is a relatively weak feeder cattle basis — a result of cash prices lagging behind futures price increases.
“The weak basis could actually be perceived as a positive from a price risk management standpoint for deferred marketings,” Griffith says.
“For producers hedging the sale of cattle during the fall and winter months, a basis value that stays the same does no harm, and a basis that strengthens would mean cash prices would increase more than futures if the price increases, and cash prices would decrease less than futures if the price decreases. The moral of the story is to consider price risk management tools now for fall and winter feeder cattle sales.”
Last week’s USDA Cattle on Feed report indicated a 4.3 percent bump in inventory for feedlots with a capacity of 1,000 head or more. June placements were up 1.3 percent from a year ago, with marketings up just under 1 percent.