Iowa Beef Center  |   November 15, 2011

The year is winding down with the holidays between use and another year. Cattle feeders are looking out into a year with opportunities and a heavy dose of uncertainty. Fed cattle prices are finishing out the year strong and the futures market is offering prices even better than the ones we have had this year. So we will be heading into a New Year on the “right side” of the market.

Profitability is looking good for cattle marketed from now through the middle of next year based on the current cash and futures market prices for cattle and corn. (see www.econ.iastate.edu/margins) Even without a current promise of profitability during the second half of 2012, there are some considerable opportunities that justify a producer’s attention.

First, when is the best time to use the futures market to price-protect later cattle marketings? The short answer is “when the current cash market is at its best." Figure 1 is a graph of the 5 area live cattle price. Cattle prices are well above those of a year ago. Figure 2 is a illustration of the choice-select price spread (which had been hovering around $5 for more than a year) that has started to jump in late summer and is now around $18. Beef demand domestically has been strong and exports have grown considerably from last year. Topping off the reasons for a bullish cattle market is an expected 4-5% decline in beef production in the next year.

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In short, there is strong bullish pressure in the cattle markets and the futures market has reacted accordingly. Figure 3 plots the April Live Cattle Futures contract over the past five years. A study of market movements show two marked peaks, the one we are currently sitting at the top of and one that started strong but declined quickly in 2008.

Those involved in the cattle market will remember the $20/cwt drop in cash cattle prices in the third quarter of that year. Those involved in the futures market will remember the $40/cwt decline in the April 09 Live cattle contract from June to December 2008. Cattle prices have a strong degree of sensitivity to the economic environment of the consumer. We are now once again at a high point in the futures contract prices for the coming year.

No one knows what is ahead, but can we expect cattle prices to keep climbing or will there be a second dip in the economy that sends us back into recession? Producers need a marketing plan more than ever. In 2012, protecting the price of fed cattle may be as important as price protecting feed was in 2011.

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Source: Shane Ellis, ISU extension program specialist