Last week, the choice cutout value averaged $15 above a year ago. Negotiated fed cattle prices $1 over a year ago. Since the second week in February, when cash cattle prices may well have topped for 2018 at $130, the cutout rally has been pretty spectacular. Wholesale beef prices have risen sharply on 3.1% larger beef production than a year ago. Even bears can’t dismiss this testament to excellent domestic and export beef demand.
So why have cash cattle prices softened so easily the last 3 weeks given that immediate market-ready fed cattle supplies are current. Placed against number won’t rise dramatically until mid-April, when they reach levels in May and June not seen for years. Has it been the fear of what’s to come and the attempt to front-run the highly anticipated market decline as the primary explanation as to why cattle feeders have been weaker sellers? There are other reasons of course: needed pens space, basis, profitable close-outs, but the weakness has surprised some, if not many.
Of course, any cattle trader knows cash tops more often in March or April than February. Last year cash topped on a belated, grease-fire rally at $144 average in early May. Everyone knew that wouldn’t happen this year, but a $130 top in first-half February would have been an underwhelming prediction considering both supply and demand fundamentals for Q1. Now the question being asked is whether the immediate tight supply of market-ready cattle in the north, coupled with profitable packer margins will be enough fuel in the tank to propel the cash market higher again in March- or not.
Source: The Beef Read