Cattle & Ranch Report

June 12, 2024

Live Cattle:

Stagflation is painfully slow in declining, but it is. Nothing new today that I can see.  Boxes continue to rise, opening further margin to packers and rationing beef to the consumer.  I continue to see nothing to do in the live cattle market, as fewer do as well.  Open interest has dropped back to 275K.  The positive basis offers no room for error as hedging in a loss, or into the current discounts to cash don’t make a lot of sense.  Neither does bidding higher for incoming inventory, but that is seemingly on the table.

Feeder Cattle:

The higher box price will further ration the number of consumers.  The higher box price will further widen the profit margin to packers.  Note that both have shifted and are continuing to shift in a manner that best suits themselves.  The cattle feeder is going to do the same, what best suits themselves.  What we don’t know is whether what suits them is total control of inventory by a few, or more continue to have a seat at the table.  Either way, with prices this high, only one of two things will happen.  One, the cattle feeder bids inventory to a level where fewer can participate, or two, they attempt to reign in some form of control over what they pay for incoming inventory.  Backgrounders are betting on one.  Futures traders aren’t betting on much of anything as they continue to produce a triangulating pattern that is contracting prices into a narrower range. As well, there are fewer participants in the feeder cattle futures now to help produce volume for trading.  I anticipate a great deal more volatility than I do price direction.

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