Find the middle and take a strong hold. That dog-eared advice for climbing on a green-broke colt in a windstorm served equally well for those sorting through cattle markets this week.
Feeder Cattle futures made decent gains Monday and limit-up moves Thursday. They were limit-down $3 across most of the board the other three days. Week-to-week, Feeder Cattle futures were an average of $4.67 lower ($2.05 to $5.72 lower).
Live Cattle futures were nearly as volatile, making triple-digit gains Monday and Thursday, but suffering triple-digit losses in the other three trading sessions. Week-to-week, Live Cattle futures closed an average of $3.14 across most of the board.
Cash prices for calves and feeder cattle at auction ebbed and flowed with futures trends.
“Yearling feeders, along with steer and heifer calf prices, were very uneven, posting wide trend swings,” explain analysts with the Agricultural marketing Service (AMS). “Early-week feeder and stocker trends were very uneven, ranging from steady to $5/cwt. higher to $5 lower. From mid-week on, there were instances of as much as $8-$10 lower at many auctions.”
Overall, though, regional cash price averages were fairly steady.
Despite the volatile futures market, steady week-to-week wholesale beef values, along with the previous week’s pop in cash prices, helped cash fed cattle trade steady to $1 on either side of even money this week. Live prices in the Southern Plains were $164/cwt. Nebraska traded at $164 on a live basis and at $258 in the beef. Live prices in Iowa-Minnesota were $1 higher than the previous week at $163-$165 live. Dressed sales there were steady at $257-$258.
“Market watchers are looking closely for signs of weakening demand at the restaurant and grocery level amid broader economic uncertainty,” explained John Otte, Penton market analyst, earlier this week. “Any sign of consumers spending less at the retail meat counter, or pulling back on restaurant visits and spending, would be detrimental to the beef market.”
As much as anything, negative outside markets seemed to be the main reason that traders were pulling leather.
“Growing concern about economic growth, mainly in Europe and Asia, has caused market participants to sell off assets and be in a very defensive mood. Cattle futures and many other agriculture commodities fall into that category,” AMS analysts said Friday. “Also, escalating concerns over the Ebola virus spreading further in the U.S. has investors nervous.”
Major U.S. financial indices lost ground week-to-week, but a rally Friday helped them close the gap.
The same sluggishness in global economic growth that caused investors to pull the plug on risk this week also poses a potential challenge to international meat demand (see “U.S. Beef Export Value Surges Past $325/Head”).
“Slowing economic growth in places like China and continuing underperformance in Europe could eat into export markets.” Otte says. “That's particularly true in regions where the rising value of the U.S. dollar makes imports that much more expensive in terms of the local currency.”
As bearish as the week felt, AMS analysts reminded Friday, “Despite the lower prices in the feeder cattle market, we are still at all-time highs and back to prices we had two to three weeks ago in many areas.”
“March feeder futures have traded with volatility between $230 and $236/cwt. recently after increasing sharply through the month of September,” Derrell Peel, Oklahoma State University Extension livestock marketing specialist, explained in his weekly comments. “Basis has been unpredictable recently but generally stronger than usual suggesting that spring prices will be at or above the levels indicated by futures.”
In examining wheat pasture prospects and stocker cattle opportunities, Peel explained, “Despite the current record price levels, there is no strong indication that feeder markets face any significant downside market risk for winter grazing.
“Nevertheless, for some producers, some sort of ‘disaster’ protection may be advised,” Peel says. “Risk protection in the form of minimum price tools such as of out-of-the-money put options may be preferable to fixed price alternatives. However, fixed price tools such as a short hedge or forward cash contract can be combined with a call option as a synthetic put and maintain some upside potential. Managing production risk, such as minimizing death loss impacts, is probably as big or bigger risk than market price risk. If you have something to sell next spring, it will sell well. The challenge is to make sure it stays alive, keeps growing, and doesn’t get stolen!”
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