By Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle traded $2 to $4 higher on a live basis compared to last week. Prices on a live basis were mainly $130 to $132 while dressed prices were mainly $210 to $212. The 5-area weighted average prices thru Thursday were $131.62 live, up $3.50 from last week and $209.22 dressed, up $3.88 from a week ago. A year ago prices were $125.58 live and $205.36 dressed.
It has been 22 months (week ending June 21, 2015) since the 5-area weekly weighted average price exceeded year ago prices from the same week, but it is sure to have happened this week. Fed cattle continued their price ascension as cattle feeders have not let off the gas.
The price increase this week keeps cash trade at a premium to futures prices as traders have been reluctant to fully close the gap. Additionally, the June live cattle contract continues to trade at a $13 to $15 discount to this week’s cash prices which means there is a lot of distance to cover to reach convergence.
Fed cattle prices are certain to soften heading into late May and early June, but it is difficult to fathom a $15 price break in finished cattle over the next two months.
OUTLOOK: Feeder cattle future prices have advanced $13 to $18 in a seven week period. Higher prices on the futures market is a function of several factors including a strong and steady live cattle cash price, strong slaughter numbers, lighter finished cattle carcass weights, inexpensive feed, and pen space cattle feeders are looking to fill.
Though all the aforementioned factors contribute to higher feeder cattle prices, these conditions have been part of the marketplace for several months. The stronger prices for feeder cattle today is more a factor of the market realigning itself with where it should have been months earlier.
In other words, it is a price correction. For several months, deferred live cattle futures have traded at severe discounts to the nearby contract and cash trade.
Picture: Northern Ag Network