Record cattle futures driven by cash market momentumRecord cattle futures driven by cash market momentum
Cattle futures surged to record highs, driven by strong cash market support and increased fund buying, despite limited movement in cash prices.
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Futures were sharply higher Wednesday with triple-digit gains across the board in live and feeder cattle futures. Wednesday’s close in February live cattle of $200.05 per hundredweight is a new contract high, taking out the high from September 2023. It is also a new record high for a spot month contract. The same goes for January feeder cattle, settling at a record price for a spot contract of $277.05 per hundredweight.
The explosion higher points to large fund buying although there does not seem to be any development on the cash front warranting such an aggressive addition of longs. This suggests Wednesday’s move is a basis correction as the cash market has observed a hefty premium to futures for quite some time now.
Through Wednesday afternoon, we see fed cash cattle on the negotiated market trading mostly steady in the South at $201 per hundredweight, and some later this afternoon at $202 on small volume, $1 higher than the previous week. In the North last week, cash traded at $203 to $205 per hundredweight and $322 dressed with not enough movement this week yet to establish a market. Last week’s 5-Area Weekly Steer price notched another record high at $203.67 per hundredweight. This marks nine consecutive weeks of higher cash prices paid by that measure.
Dressed weights reported Thursday last week showed steers up 3 pounds to 959 pounds and heifers up 10 pounds to 878 pounds – a new record for heifers.
Choice boxed beef averaged $331.58 per hundredweight last week, an increase of $4.48 per hundredweight from the week prior. Select averaged $318.71 per hundredweight, an increase of $11.08.
The chuck and the round continue to storm higher while the rib primal continues its descent. The switch in domestic demand from middles to ends is in line with seasonal patterns, as is the narrowing spread between choice and select values.
Slaughter last week was estimated to be 603,000 head, up 14,000 from the week prior and 2,000 head below a year ago. This week, slaughter is expected to be in the 600-605,000 head range, compared to 615,000 a year ago for the same week.
Packers continue to slow slaughter, presumably hoping to keep boxed beef prices moving higher. Smaller weekly slaughter counts compared to a year ago will likely last as beef demand softens through winter. This will keep dressed weights at historically lofty levels.
Moving into the end of January and into February, cattle feeders should continue to hold leverage on the cash market. Momentum is likely to shift more toward packers however as consumer demand slows seasonally.
The latest CFTC Commitment of Traders showed that, as of Tuesday, January 14, managed money held a net long position of 149,725 contracts in live cattle, an increase of 5,239 contracts. This is the net longest position for managed money since April of 2019, and only 5,458 contracts less than the record. In feeder cattle, managed money was reported with a net long position of 26,768 contracts, an increase of 2,176 contracts -- a new record net long position.
Open interest in live cattle increased from 5,879 contracts last week to 375,158 contracts. Feeder cattle open interest increased from 3,194 contracts to 81,376 contracts. For feeders, this is an increase of over 30,000 contracts in only two months, a new record, and by a mile to say the least.
Cattle on Feed is set to be released this Friday at 2:00 pm CST. Here’s what analysts expect:
The “on par” estimate for placements likely ties back to beliefs that record-high prices for feeders have attracted producers to come to market amid lesser supplies. The slightly lower year-over-year call for the January 1 cattle on feed estimate reflects the belief that feedyards remain mostly full as cattle feeders are holding out for higher prices, especially in the plains.
The actual Cattle on Feed report figures will likely dominate action in the futures market next week. February live cattle futures are still trading at around a $3.50 per hundredweight discount as of Wednesday’s close to last week’s 5-Area Weekly Steer price. Assuming this positive basis is still intact by Friday’s close, it should provide some support to any slight to moderate bearish report numbers.
In summary, cash is driving the market higher and has propelled futures to record prices. It is pertinent to remember that while cash has been driving live and feeder cattle futures, managed money has consistently added long-side exposure week over week. History suggests that, when they decide to leave, funds are often quick to bolt for the doors, resulting in sharp and lasting corrections.
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.
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