Feeder cattle prices versus fed cattle futures

Want a starting point to price feeders? Look at fed cattle futures.

Nevil Speer

January 30, 2020

2 Min Read
Feeder prices
Nevil Speer

Last week’s column highlighted recent trends around negotiated trade for fed cattle. Most importantly, the trends of late defy conventional wisdom. That is, “despite very thin cash markets during the past four months, the market has made an incredible recovery; through December, fed prices tacked on $25 in just 15 weeks – and completely reversed the packer margin trend.”  

Clearly, any discussion around the fed market has implications for feeder cattle, too. However, too often the discussion gets confused. Feeder cattle are not priced off the current (cash) price of fed cattle, but rather based on deferred CME futures contracts.

This week’s graph highlights the relationship between those two markets. The price relationship has remained surprisingly consistent ever since the market transitioned through the sharp plunge of 2015. In general, the CME feeder cattle index has been running about $30 ahead of the deferred live cattle contract. To that end, during the past four years the deferred fed average is $114, while the feeder cattle index has averaged $144.  

Inevitably, one of the most common questions from producers goes something like, “What’s your outlook for feeder prices?” Based on this trend, the answer inherently invokes a question on the other side, “What’s your outlook for fed prices?”  

Feeder prices

In other words, wherever the respective deferred live cattle contract is priced, tack on $30 and that’s your starting point for feeder cattle.  

That also invokes the concept of added value. The $30 spread is a strong and consistent trend. And so, in the absence of any additional value (or at least documentation of such), it’s hard to overcome that trend. It represents the power of large numbers – without additional information everything gets regressed to the mean.  

Therefore, adjustments for management and genetics have to be clearly documented and marketed in the proper venue to overcome that trend and be appropriately awarded in the marketplace. 

Speer serves as an industry consultant and is based in Bowling Green, Ky. Contact him at [email protected].

About the Author(s)

Nevil Speer

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY.

Nevil Speer has extensive experience and involvement with the livestock and food industry including various service and consultation projects spanning such issues as market competition, business and economic implications of agroterrorism, animal identification, assessment of price risk and market volatility on the producer segment, and usage of antibiotics in animal agriculture.
Dr. Speer writes about many aspects regarding agriculture and the food industry with regular contribution to BEEF and Feedstuffs.  He’s also written several influential industry white papers dealing with issues such as changing business dynamics in the beef complex, producer decision-making, and country-of-origin labeling.
He serves as a member of the Board of Directors for the National Institute for Animal Agriculture.
Dr. Speer holds both a PhD in Animal Science and a Master’s degree in Business Administration.

Contact him at [email protected].

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