COMMENTARY BY TREY FREEMAN
Cash fed cattle markets developed slowly this week, with generally lower prices on Friday. In the South, trade occurred at $242 per hundredweight, $2 lower than last week. The North traded at $240 per hundredweight, steady with late last week. Dressed trade in the North was $3 per hundredweight lower at $380.
Choice boxed beef finished $7.45 higher at $387.22 per hundredweight, a function of extremely low slaughter rates in recent weeks. Higher boxed beef prices combined with lower costs for cattle over the last couple weeks have largely improved packer margins, although they likely remain in the red. Slaughter picked up in the latter half of this week with USDA estimates coming in at 521,000 head, 2,000 higher than last week but down 58,000 head from last year.
Volatility was rampant among outside markets, creating havoc in live and feeder cattle futures. April live cattle finished the week at $234.575 per hundredweight, well below cash. Pressure on futures due to global uncertainty is likely the main culprit for such a positive basis. Surging energy prices and a waning stock market typically hurt consumer beef demand. The sharp drawback in kills matched with stubbornly high cattle weights is perhaps playing a role in basis as well, leaving the marketplace with concerns of larger-than-expected beef production in coming weeks.
March feeder cattle futures finished at $355.625 per hundredweight, nearly $12 under the CME Feeder Cattle Index printed on Thursday. Rising prices in grain markets have become a growing concern for feeder cattle futures. Corn futures finished strong with the May contract now 34 cents per bushel off the low from January, reaching its highest price since last November. The December contract was up nearly 15 cents per bushel over the course of the last three days, now almost 40 cents off its January low.
Geopolitical news will likely drive action in cattle futures early next week. Live and feeder cattle futures could deteriorate if conflict with the Middle East escalates. On the contrary, Spring beef demand is right around the corner, and futures remain well below cash markets. This leaves cattle futures with plenty of energy to surge back to February highs should tensions ease.
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