Understanding the Cash Cattle Rally

The Cash Cattle Rally is More Than Meets the Eye

ShayLe Stewart
By  ShayLe Stewart , DTN Livestock Analyst
When you look at the market's fundamentals and when you look at where the market sits technically, the strength that's rallying throughout the cash market may stand a chance to gain more leverage in the next two weeks. (DTN file photo by Boyd Kidwell)

Last week's cash cattle market was WILD compared to what we've seen during the last year. And while we all can appreciate and applaud the $2-to-$4 rally, that wasn't the only victory that the market conquered.

Last week, feedlots were finally given the upper hand in the market's cash cattle trade as Southern live cattle sold for $124 to $126, which is steady to $2 higher than the previous week, and Northern dressed cattle sold anywhere from $196 to $200, which is $4 higher than the week before. But what we may breeze over if not careful is the fact that last week's weighted average of $126.29 posts as a new high for cash cattle trade this year, and that the last time the market successfully traded fat cattle for an average of $125 was back in April 2019.

What's especially encouraging about this rally is that when you look at the market's fundamentals, and when you look at where the market sits technically, the strength that's rallying throughout the cash market may stand a chance to gain more leverage in the next two weeks. Vigorous slaughter speeds, stabilizing boxed beef prices and a futures market that seems to be opening the door to higher trade all give the cash cattle market plenty of support if feedlots demand more money.

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Last week's slaughter is estimated at 668,000 head, which is 7,000 head more than the previous week and 28,000 head more than a year ago. Year to date, 2021 has currently processed 3.2% more cattle than what was processed at this time in 2020.

If packers continue to run vigorous chain speeds and keep cattle close to the knife, then front-end supplies are going to get worked through quickly and packer's need for cattle will only continue to grow. But packers must have a reason to run faster processing speeds and thankfully they've found that reason in renewed boxed beef demand.

Since the second week of October, boxed beef prices have gradually started to find some support in the market and the closer time gets to the upcoming holidays, the greater the demand is expected to become. And lastly, with the December live cattle contract now taking center stage as the market's spot contract, upside potential looks achievable on the board. It wouldn't far-fetched to think that the December contract could easily jump to $133 to $135 here soon as fourth quarter demand typically helps boost the cattle market's morale.

It will remain crucial to continue to monitor processing speeds, consumer demand and packers' aggression in the cash market. If packers buy aggressive for a week or two and then leave the market high and dry, the run will be short-lived. But if packers are forced to buy in the cash market to keep chain speeds lively and don't have the opportunity to schedule cattle for weeks in advance, then feedlots stand a chance to demand more money and consequently gain more leverage.

As always, time will tell, but it's been a long, long time since the market has seen cash prices near $130 and feedlots are ready to reap the benefits of a current market and regain leverage.

ShayLe Stewart can be reached at ShayLe.Stewart@dtn.com

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ShayLe Stewart