By Josh Maples
Last week, James discussed the July Cattle Inventory report and the tightening supplies of cattle. Tighter supplies are expected to be a main driver of stronger cattle prices over the next few years. The December Corn futures contract is down more than $1 per bushel since mid-June which also has a positive impact on cattle market expectations. In this week’s newsletter, we’ll look at Feeder Cattle futures markets.
The CME Feeder Cattle futures contracts reflect expected prices per hundred weight (CWT) for 700-899 pound feeder cattle within a 12 state region that includes the bulk of feeder cattle sales. There are separate contracts for different months in the future. For example, the “nearby,” or closest to expiring, contract is the August 2022 contract. However, there are also other feeder cattle contracts currently trading, with the only difference being the expiration month.
The chart above shows the actively trading contracts by expiration month through April 2023. Looking at contract prices across months allows us to consider market expectations for cattle markets into next year. The August 2022 contract is currently the lowest price of the set, and every consecutive contract is higher than the previous. This is a clear signal that traders are expecting feeder cattle prices to increase into 2023. It is also worth noting that a continued increase during the winter would happen at a time when feeder cattle prices typically face seasonal pressure (chart at bottom).
The solid line in the chart above represents contract prices as of last Friday. The dotted line represents prices from June 1st. Contract prices are up approximately $10 per CWT across all contracts since June 1. The spring 2023 contracts are currently trading near $190 which, if actually observed, would mean feeder cattle prices not seen since 2015. Strong market expectations also mean there may be some attractive risk management opportunities for producers depending on your goals.
Source : osu.edu