Livestock Marketing Information Center: Spot and Forward Markets

Matthew Diersen of South Dakota State University breaks down the markets

PUBLISHED IN June 3, 2024

LAKEWOOD, Colo. – Conventional wisdom says that no one is expanding herds. Usually, this means that there is not enough expansion in total to see any difference. Local or individual situations may vary, and shrinkage or expansion is normal to observe. For example, in auctions reported by the South Dakota AMS, there have been several weeks with notable volumes of heifers traded as replacements. The volume, while interesting, does not defy conventional wisdom, the total for May was less than the total for 2023. The expansion is not rampant. Heifers weighed 700-1,000 pounds and traded for both cwt and head in both years. Replacements weighing close to 800 pounds traded at $249.00-$291.00 per cwt. This reflects a premium over heifers not considered replacements trading at $222.50-$263.00 per cwt. Replacement prices also reflect a premium to the CME Feeder Cattle Index, which averaged about $249.00 per cwt for the same period. Last year substitutes traded just a few dollars above the index of $207.00 per cwt.

The domestic price for steer calves in the country, using a weighted average of 5-600 pound animals from auctions reported by the South Dakota AMS, reached $350.00 per cwt last week. This is an all-time high for that series and exceeds the 2023 level by $50.00 per cwt (or $275 per head for the month of May, the average price reflected a base of $95.00 above the average prices of the future of feeder cattle). The basis was $56.60 in May 2023. June is generally the time of year when forward sales begin. Video auctions often have future trade contests this time of year. Given the recent spot basis levels, one would expect the high basis levels to be reflected in futures prices. Markedly lower corn and hay prices are factors strengthening the base on the cost side, while higher feeder animal prices are strengthening the base on the return side. There may be some direct trades with cash prices, but they are more common in the southern states.

The price differences of steers and heifers fade with higher weights. Spot prices for heifers from the 5-Area series were within $1.00 per cwt for live and dressed steers last week. Slaughter weights vary as live heifers weighed 1,326 pounds last week, while live heifers weighed 1,459 pounds. First market prices for fed cattle do not distinguish between suckers and heifers. Prices from AMS reports are given as baseline levels for the previous week relative to the corresponding futures prices. Thus, futures prices for delivery this June are quoted as a basis relative to the June Live Cattle futures price. AMS uses brackets for negative numbers, so a basis of ($2.60) means you have to subtract $2.60 from the futures price to arrive at the futures price. New signing levels have been moving at a faster pace than over the past two years. The result is that cumulative underwriting has returned above 1,000,000 head for most of 2024, after being below that level from late 2022 through most of 2023. Volumes are higher over the coming months of delivery and are at relatively high levels for deliveries in November and December.

Matthew Diersen, Risk and Business Management Specialist, Ness School of Management & Economics, South Dakota State University

Livestock Marketing Information Center