Report Sends Feeder Cattle Prices Higher

June 30, 2011 05:22 AM

Today's market reaction to USDA's report has seen corn prices drop and feeder futures prices move higher potentially offsetting any benefit from lower corn prices.

"The June 30 Acreage Report shocked the market by coming in with higher-than-expected planted and harvested corn acreage figures," says ProFarmer's Julianne Johnston. "The corn market immediately responded by trading limit lower. This is giving livestock producers another chance to lock in feed needs. Meanwhile, feeder cattle futures were sharply higher on June 30 in reaction to the sharp drop in corn prices due to expectations easing feed prices will boost demand for feeder cattle."

Much of the run up in feeder futures contracts can be attributed to market speculators, and that should start changing. When the report came out, feeder futures ran up a $1.50/cwt, and Feb and Apr live cattle were down $3/cwt. In real world scenarios, this would be $50/hd loss. As the initial reaction starts to subside, the market will continue to fluctuate.

"This report should weaken the premium that has been built into the deferred cattle contracts in the near term," says Justin Gleghorn with Brock Thompson Trading in Amarillo, Tex.

"While supply side economics and cheaper grain costs may support the feeder market, it is unsustainable for feeders to gain in price and the deferred cattle contracts weaken. The loss in corn acreage to flooding since the USDA collected their data has yet to be seen and the acreage number will probably be revised at some point. We have to keep an eye on the stocks/usage ratio, which is historically low at 3.67."


Brock Thompson Trading

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