Futures Market Out Of Whack With Cash Market
By Jeff Rose
We at National Farmers have taught and encouraged risk management for as long as I have been in the livestock department. Our primary tool is the CME live cattle futures. So, what do we do when our tools break down?
I hate to say it, but I don’t know. What I do know is that the futures market is not paying any attention to fundamentals or current market prices.
The futures market is currently $10 to $12 under the cash market. This is great if you have hedged cattle ready for delivery and were expecting an even to -$2 basis. Not so great if you are buying feeders in the cash market and looking to protect a profit a few months down the road.
Fundamentals have not changed much, and if anything they are more in our favor. The cow herd rebuild has not started yet, of course when it does start, fed cattle numbers will take another hit due to lower numbers of heifers on feed. Demand, it seems, is always a concern and especially so after three years of record inflation.
USDA has increased its price prediction for 2024 after we tested the $2.00/lb live mark in May and June. Cattle are only going to get tighter from here. But the futures commentary is a broken record of waiting all week for price direction and when cattle trade higher Friday after the CME close, start waiting again on Monday for something that won’t happen until next Friday after the close. While traders wait, they generally sell the market and drive it down instead of buying it.
Fund traders seem very worried about demand after three years of record inflation, but we are still selling choice carcasses for over $310 per cwt in the dog days of summer. Demand usually improves by September, and if we can hold on above $300 per hundredweight, we could break some records.
So, what to do with unpriced cattle? If you have cattle that don’t pencil a profit right now, I would take a wait and see approach. Many of our producers that didn’t price cattle early have left them open. Keep in touch with us.
