In my opinion, futures traders narrowed the positive basis this week as cash trade kept the feeder cattle index elevated. The tail end of this week's events were interesting, to say the least, with futures traders blowing out the top on Friday, nearly equaling the 10/14 high January, and creating an over $5.00 range. As box beef prices have softened this week, as well as no higher fat cattle cash trade, there are a lot of margins being squeezed between the sectors, with great expectations of the consumer continuing their resilience to higher prices. Lighter cattle have been in demand with the most recent recovery of wheat pastures. Their rise in price has narrowed the spread between calves/stockers to feeder cattle extensively. The slightly higher cash trade of the index is minor to the gains of the lighter cattle. With no higher boxes, packers are not benefiting and cattle feeders are seemingly pushing prices up against themselves for incoming inventory. Farmer feeders may be on the forefront of this with corn having traded lower this week. Whatever it is that sparked the buying, it is being done in the face of a new administration that is hellbent on lowering inflation. So far, under just the aspects of his administration coming to power, the US dollar has soared nearly 7% in as many weeks, with bonds continuing to sell off this week. These two factors alone will continue to encourage imports of beef, while discouraging exports, and making new purchases of anything on credit more expensive.
The wide positive basis spread in feeder cattle was narrowed this week. This will provide a little better basis spread to work with, but I don't expect we will see basis go negative in the spring months. I believe farmer feeders are having a lot to do with the bidding higher of incoming inventory. Their profit metrics can be significantly different than a commercial feed yard with the ability to feed their own corn. Nonetheless, basis is narrowing, at the top end of a known historically high price range, with an incoming administration hellbent on lowering inflation. While cattle and feeder cattle are currently outliers of the commodity spectrum, able to trade higher with all others lower, the function of the higher US dollar and higher interest rates will be anticipated to influence the cattle market as it has grains, metals, now energy, and maybe equities.
Grains were lower on the week, as were metals and energy. I continue to expect energy to trade higher, but didn't this week. The start of next week will be filled with movement due to heavy margin requirements created on Friday, the expiration of the November contract, and the narrower basis providing a higher marketing opportunity in futures for producers. As well, once the flurry of buying is complete, a lot of cattlemen will have transferred their risks to the new owners. Those new owners are believed to have narrower margins to work with, the aspects of the new administration curtailing inflation, and a need for someone to pay an even higher price in the future. Friday's trade is believed to have shaken up the market a little. I will be anxiously waiting next week's trade for further marketing opportunities.
Christopher B. Swift is commodity broker and consultant with Swift Trading Company in Nashville, TN. Mr. Swift authors the daily commentaries "mid day cattle comment" and "Shootin' the Bull" commentary found on his website @ www.shootinthebull.com
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