Feeder cattle prices continue to fluctuate, leaving analysts somewhat confused.
“If a person solely used feeder cattle futures as his or her only cattle price information, then that person would likely be extremely confused at this juncture,” says Andrew Griffith, Extension ag economist with the University of Tennessee.
“The reason for the confusion would be largely due to prices fluctuating tremendously without any solid information to cause such fluctuations.”
In his weekly market outlook, Griffith says the January futures contract has moved from $138 per hundredweight in early April to over $156/cwt. in early October.
Prices have been in the mid- to upper-$140s recently, he adds.
“The tendency of most in the industry is to view the fluctuation in futures prices as a negative when in fact it could be viewed as very positive,” Griffith says. “The reason most producers would view futures price fluctuations as a negative is because a downward move in the futures generally has a negative impact on cash selling prices which means fewer dollars of revenue at sale time.
“This is only negative if prices fall before a producer markets his or her cattle. Alternatively, an increase in futures just prior to marketing cattle could result in greater revenue.”
He says it is a mistake to “simply be at the will of the market” because of its volatility.
“One should look at the opportunities offered by the futures market to hedge cattle sales at profitable levels,” Griffith says. “In the case of January, there were 17 days in which the contract traded above $153/cwt. Only one of those days had the highest price, but one does not have to hit the very top but rather lock in a profit.
“This is easier said than done as no one wants to miss out on the market moving higher, but there are plenty of complaints when the market moves lower. The market almost always provides a favorable marketing opportunity if one will just start looking for it.”
Last week’s USDA Cattle on Feed report showed a 3.2 percent increase in numbers for feedlots with a capacity of 1,000 head or more. October placements were down 0.6 of a percent from a year ago, a bit more than pre-report estimates.
October marketings were up 4.8 percent from a year ago. Placements of cattle weighing less than 900 pounds were down across the board, while placements of cattle weighing more than 900 lbs. were up 8 percent, according to USDA.