Live cattle futures have been slowly chipping way at the drastic declines experienced earlier this year due to COVID-19. In the last 30 days, the June cattle future has climbed $15.45 to just under $100. At its lowest point, in early April, the June future was $76.60. With U.S. cash trading between $115 and $120 last week, the current debate is whether the futures will trade up to the cash price or whether the cash price will drop to the futures’ level as the weekly slaughter returns to normal historical levels.
Last week on RealAg LIVE, Ted Seifried of Zaner Ag Hedge and Shaun Haney talked specifically about the protein market and what the rest of the season could look like price-wise.
“Part of the reason for the gap between futures and cash is that the market wants to offer packers as much margin as possible to bring capacity back on line,” says Seifried. “I do not see much downside potential for cash as processors come back online at this point.”
Other theories on the direction of the market wonder if the cash has been overinflated at a time when packer margins were so wide. Momentum has been building for increased packer regulation in the U.S. As more cattle get slaughtered on a weekly basis, this will relieve pressure on packers to defend the cash price.
While cash and the futures have lifted in the last month, boxed beef values have declined. “As more beef makes its way into the pipeline we can expect wholesale beef prices to continue to come down. May 12 was the peak for the Choice cut-out at $475/cwt, meaning it’s already down 22 per cent,” notes Anne Wasko of the Gateway Livestock Exchange,
There are concerns about the economy and the impact a recession would have on demand, but Seifried is “not worried about demand.” Others are not as convinced based on beef’s lack of price competitiveness to pork and poultry in an economically trying time with high unemployment across North America. Memorial Day through Labour Day demand will be critical to continuing the recovery.
Listen to Ted Seifried of Zaner Ag Hedge discuss the cattle market with Shaun Haney: