MARKET UPDATE
FED CATTLE MARKET FINDS FOOTING
By Patrick Linnell CattleFax Analyst
The fed cattle market found its footing to close out 2023 , hopefully a sign the late-year market turmoil will be left in 2023 . Headwinds persist but the stability adds confidence that the fed cattle market can move higher into spring .
The CattleFax U . S . fed steer price fell to a low of $ 169.14 the second week of December before closing out the year at $ 172.26 . The cash market was able to find support in this area despite a seasonally large discount in the December live cattle futures at the time . In other words , the cash market rejected the lower levels the futures were anticipating .
Consequently , the upper $ 160s to low $ 170s should be major support to the cash fed cattle market in the months ahead . Seasonally slow beef demand and relatively adequate fed cattle supplies may be restrictive to the fed market in the coming weeks , but downside risk should be limited even if a pull-back occurs . Rather than opening substantial downside , these factors are more likely to be limiting to upside potential to the cash in the month or so .
From today ’ s levels , a higher market trend is expected to unfold into spring with potential for spring highs into the mid- to upper- $ 180s . Keep in mind that last year , even ahead of the secondary , late spring rally into June 1 , the market was able to hit a $ 179 in mid-April last spring . The macro trend of cyclically tighter cattle supplies and smaller fed slaughter in 2024 make clear the market should achieve a higher spring high than what was seen last year .
Winter weather and feeding conditions , currentness of the fed cattle supply , and beef demand will be key fundamental factors
to monitor in gauging the extent of upside potential . In particular , beef demand will be important to monitor considering adequate competing protein production and the current cutout weakness . However , retail beef demand has remained historically strong up to this point , and the U . S . economy continues to out-perform expectations .
Outside market factors will also be important to watch , especially regarding money flow and open interest growth in the futures complex and their potential to open more upside . Open interest should seasonally expand , and more rapid growth has a strong correlation historically with larger rallies to both cash and futures into spring . If a more modest pace of open interest growth is seen , the market will be even more cash led .
Futures are also unlikely to fully anticipate cash strength into spring but are more likely to move more hand-inhand with the cash market as we head into late winter and spring . At the highs last fall , April live cattle futures priced in a $ 200 spring cash market , doing much of the anticipatory work well ahead of time . In that way , risk managers are unlikely to see large premiums to hedge for spring fed cattle marketings .
Bottom line : After the volatility this fall , the recent stability in the fed cattle market is a positive sign for the market trajectory , confirming the expectation for seasonally higher prices into spring and a market that averages higher year-over-year in total in 2024 .
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