Topsy-Turvey Markets Back In Sync As Futures Lead The Cash Higher

National Farmers has encouraged price risk management as long as I have been in the livestock department. In mid December, the Five Area Weighted Average was almost $191.00 and the December ‘24 futures closed at about $190.00, only a -$1.00 basis compared to -$12.00 when you read my last Signals article in early November.

So, the futures market is fixed? Well, for now, sure. In fact, we may be heading back to a period of the futures leading the cash up instead of looking for any little reason at all to crash and pull the cash market down with it.

I think this is the case now for a couple of reasons. First, the tightening supply is getting too obvious to sweep under the rug. Traders were able to pretend it didn’t exist through the summer with a little help from the USDA not issuing the July Cattle and Calves Inventory.

We will get the annual January report, and it doesn’t take a rocket scientist to know that it is going to tell us we have a record small cow herd. Second, inflation, or pointedly the lack thereof.

Cattle prices are pretty high, but not because of inflation, it is because of supply. It is my contention that beef prices would be even higher if not for overall inflation. If energy prices do come down under the new administration, I think beef producers will benefit from consumers having more disposable income to spend on beef, and demand will increase.

I have not written about the heavier weights that we are seeing in the fed cattle market this past year. By most accounts carcass weights are up 30 pounds year over year and supposedly are making up any lost production from lack of head count. I have a bit of a problem with this analysis.

I am not an expert on carcass yield by any stretch, but I did spend a lot of my misguided youth as a meat cutter in my parents small custom slaughterhouse. I do not think that all of those extra pounds are meat. For sure, some of it is plain old fat that will get trimmed and rendered. I don’t pretend to know how much is which. I also have to wonder how many extra steaks we get. I am pretty sure as the steer gets heavier that he doesn’t get much longer, and that is what is needed to get another steak of normal thickness to sell.

There will still be up days and down days. For instance, the border is currently closed to Mexican feeder cattle, but it will be opened eventually. This will likely cause a downward move in the markets. But the fact is we need those cattle, partly to supply the Mexican market with beef! So, I think those moves will be short-lived.

So, what to do with unpriced cattle? As always, I won’t talk anyone out of locking in a profit right now. And from now until April is usually when we see our highest cash markets, and that fuels the futures market. Please take a look at your break evens and be ready to price if the market gives you the profit you want, it can be short-lived.