As summer nears, feeder cattle prices tend to trend upward seasonally.
That may not happen as soon as normal, says Andrew Griffith, Extension ag economist with the University of Tennessee.
“As the local calf market is transitioning from a somewhat typical spring price peak to softer prices in the summer months, the feeder cattle market has shown no signs of making a seasonal price run,” he writes in his weekly market outlook.
“This is reflected in both the cash markets and the futures markets. The four remaining feeder cattle futures contracts for 2019 as well as the four feeder cattle contracts trading in the first half of 2020 are all trading in less than a $2 range.”
Griffith says it seems improbable that feeder cattle prices will continue to remain in such a narrow range.
“Given the $27 price decline over the past five weeks in the futures market, it would be nice to say that this market only has one direction to go and that is up, but this is not possible to say right now as several contracts traded down the limit on Thursday with big losses again on Friday (May 31),” he says.
Griffith says he expects the market to factor in the recent price trend and correct itself.
“The one thing that can be said is that low prices will eventually cure low prices,” he says. “As lower prices remove profitability from the market, producers will reduce production at the cow-calf level.”
For some producers, Griffith says, it may be too late to adjust.
“The current price signal was sent too late to impact the current breeding season,” he says. “The producers who will suffer the most in the near term are stocker producers who purchased high-priced calves this spring without hedging the sale of those cattle.”
Fed cattle losses came to an end last week. Griffith says it is difficult to pinpoint the reason, and that fed cattle “continue to trade with a positive basis, which is desirable for anyone on the selling side of a transaction.”