Feeder cattle prices continue to be a bit of a mystery.
Andrew Griffith, Extension ag economist with the University of Tennessee, says recent contract lows are puzzling. For example, on June 25 the August feeder cattle contract closed at $131.33/cwt.
“Since that low, the August contract has traded back to the upper $130s and appears to be garnering a little support as the summer yearling market rounds into form,” he writes in his weekly market outlook.
“The one aspect of feeder cattle futures that participants should keep an eye on is the lack of spread from the August contract through the November contract. The four contracts that are traded for the summer and fall marketing time frame only have an 80 cent per hundredweight spread as of this writing, with November leading the way.”
A small price spread usually translates into heavier cattle, Griffith says, especially if feed is cheap.
“Alternatively, if weight cannot be added inexpensively, then the market is not offering much of an incentive,” he says.
Griffith says stocker operations may want to cut losses by marketing their current group and moving on to the next.
“The disadvantage to this way of thought is that feeder cattle futures into spring of 2020 are $2 per hundredweight below the fall 2019 prices,” he says. “At this time, it appears nearly every decision results in a negative outcome, which means a person has to try to make a decision based on what will hurt the least.
“It is similar to choosing between having a finger amputated swiftly with a sharp knife or putting a rubber band around it and watching it fall off slowly — (there is) no good outcome there.”
Last week’s holiday cut into trading days. Griffith says cattle continued to be sold with a positive basis. He adds the industry is a bit edgy as they wait for the bottom to be reached, and are hoping for higher prices.
Griffith adds the excitement will be put on hold as live cattle prices in July and August will likely not be strong.