- Cash Cattle last week ranged from $130-$132
- Cash this week is expected to be steady ahead of Cattle on Feed
- Boxed Beef ended last Friday at $284.30 Choice and $269.53 Select
- Weights steady at 833 Dressed, mainly as packers pulling cattle on time or slightly early
- Slaughter still running high, near 650,000 head, trying to get ahead of next weeks holiday kill hours. Expect high kill again this week, above 650,000 head.
- Early cattle on feed estimates have all categories called below 100% of October 2020
February Live Cattle Futures
Source QST
Fireworks in November? No Sir. November is usually a month reserved to finish out our countrys Sick Season. Every cattle feeder, backgrounder, and cow/calf rancher has been, and still is, working their tails off trying to keep every animal alive and healthy. Not an easy task when the weather changes 40 degrees from high to low, and the sun doesnt shine for a week straight. Everyone is waiting for that first hard freeze to straighten up some of these health issues.
To add insult to injury, December fat cattle futures cant catch that big bid were all looking for. Cash has moved $8 higher over the last 4 weeks. Why cant futures get a run going? October-January are the worst months for a true hedger. Futures get a little beat in their step, and cash wants to come along, but not quite as fast. This leads to our seasonally negative basis. A hedger may have done the right thing to manage risk by selling when the profit margins made sense, but in the end a negative basis could chew up all that profit if he wasnt expecting it. So where is our negative basis now? December Live Cattle are trading almost exactly where last weeks cash average was. Is the futures rally yet to come based on seasonal tendencies? Im a believer. But Im a little patient for the right opportunity. This $8 rally in cash cattle had more to do with the holidays than people think. Packers are looking for top end cattle to fill their prime and choice orders for holiday gatherings. At the same time, they are trying to lock down their kill slots for the week of and week after Thanksgiving. Those are important kill weeks as the grocer is printing adds and stocking shelves coming into Christmas. In this new climate, stocking shelves isnt the reality, more so filling orders placed by consumers and retailers well in advance.
Long story short, my number in February is a solid $142. It shouldnt be all that hard to put $6 on February futures before then. But it might be a little harder to get cash to rally up $10 in that same time frame. Expect the negative basis and plan for it. There is an excellent tool out there to help manage that risk. Many of you have heard of it, but dont fully understand how it could work in your favor. This is one scenario. Call us and we can walk through the advantages of this tool compared to others youre currently using. Look back at the cattle on feed numbers and market tendencies. At our current levels, do you expect to see fireworks in November?
Watch your feed prices guys, dont get caught standing on the sidelines like last winter watching cost of gains go from below 90 cents to above $1.25. I would recommend buying the physical and looking at some cheap puts to protect. Basis management is a big part of that recommendation. Supply issues and trucking nightmares could cause basis to get wild this winter. Surround yourself with some inventory, then manage that risk. The corn crop is almost completely harvested. Might be another opportunity lower to buy at, but the story is all about demand from here on out. And corn usage is certainly shaping up to paint a bullish picture. Own the feed. And buy a few feeder cattle contracts, unless youre planning to sell the feedlot soon. You have the risk, lets get it managed.
63 head of Heifers weighing 762 brought $151.75 returning $80/hd with a zero basis against June and $1/CoG. Last number I heard was a +4 first half of May here locally. That makes those girls win $130. Dont look back and wish you had.
Looking to Trade or Hedge Cattle? Please reach out and let’s chat…
Dan Gerhold
319.320.4774
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