By James Mitchell
When we reach either extreme of the cattle cycle, it changes how we interpret and forecast price relationships. One challenge is understanding relative prices for cattle in different weight classes and basis, particularly when traditional models rely on historical averages. This article focuses on the role of the cattle cycle, the changing relationship between calf and feeder cattle prices, and the implications for basis.
Figure 1 shows the annual average ratio of Arkansas calf to feeder cattle prices with national January 1 cattle inventories. Tight calf supplies following herd contraction raise the relative value of calves, shown by an increase in the price ratio. This shift in price relationships not only has implication for margins—it also impacts how we interpret and predict basis patterns.
Source : osu.edu