By Trey Freeman, Ever.Ag

Live and feeder cattle futures have mounted significant losses amid larger global financial concerns. The most actively traded October live cattle contract dropped over $7.50 per hundredweight in three days, while September feeders have lost nearly $16.00 as recession concerns fueled a sell-off. Nearby August live cattle futures closed at $181.55 per hundredweight on Monday, nearly $13.00 below last week’s 5-Area Fed Steer price of $194.45. 

As for feeders, the CME Feeder Cattle Index was reported at $256.55 per hundredweight for the 7-day rolling average as of Friday, $2.25 lower from a week ago. This means the August feeder contract at $244 per hundredweight as of Monday’s close is trading $12.55 per hundredweight below cash.

Sharper declines in deferred live cattle contracts compared to the nearby contract have led to backwardation in the futures market as August trades at a premium to October, and an even larger premium to December. Looking to the end of the bull market in late 2014, the market was in heavy backwardation. Futures proceeded to rally significantly, but curves soon flattened out, eventually turning over into 2015 and marking the end of the bull cycle. Although many aspects differ in this bull cycle compared to the last, market analysts and participants will keep a close eye on the slope of the cattle futures market. This could be a leading indicator that the honeymoon phase of the bull cycle has concluded, and supply and demand fundamentals will burden much more weight to higher prices moving forward. 

Looking forward into the remainder of the week, expect a level of support in nearby live and feeder cattle futures due to their heavy discount to cash markets. From a more long-term standpoint, further out contracts have endured massive losses that will likely loom heavy and limit rally potential. The cattle futures complex will monitor closely indicators of the overall global economy into the end of the year. 

The risk of loss trading commodity futures and options can be substantial.  Investors should carefully consider the inherent risks in light of their financial condition. The information contained herein has been obtained from sources to be reliable, however, no independent verification has been made.  The information contained herein is strictly the opinion of its author and not necessarily of Ever.Ag and is intended to be a solicitation. Past performance is not indicative of future results.