Although negotiated cash fed cattle trade remained undeveloped through Thursday afternoon, indications continued pointing to higher prices for the week. Consider, the handful of dressed heifer sales $1 higher at $192/cwt. in the western Corn Belt. Also, Live Cattle jumped $2.52 in expiring Dec to go off the board at $124.55.
Live Cattle futures closed an average of 94¢ higher; an average of $1.61 higher in the front three contracts.
Wholesale beef values provided support. Choice boxed beef cutout value was 68¢ higher on Thursday afternoon at $202.28/cwt. Select was 49¢ higher at $190.91.
Feeder Cattle futures closed an average of 35¢ higher.
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Major U.S. financial indices closed higher on Thursday amid light trade once again.
The Dow Jones Industrial Average closed 63 points higher. The S&P 500 closed 4 points higher. The NASDAQ closed 10 points higher.
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“The number of feeder transactions by region comprising the CME Feeder Cattle Index are not distributed equally through all geographies, a key consideration producers should have when establishing a hedging program,” says Don Close, senior animal protein analyst for Rabobank’s RaboResearch Food & Agribusiness (RRFA). “The question as to how well a geographic area is represented in the composition of the index is an important consideration to incorporate in hedging strategies.”
Close suggests a regional approach to basis, utilizing the same states that currently comprise the CME Feeder Cattle Index. That index serves as a cash reference for feeder cattle nationally and provides the price by which Feeder Cattle contracts are settled.
RRFA analysts suggest five regions: Montana and Wyoming; Nebraska, South Dakota and North Dakota; Iowa and Missouri; Kansas and Colorado; and Texas, Oklahoma and New Mexico. Among other potential benefits, the notion is that such an approach would be more reflective of regional feeder cattle value while providing insight to shifting supplies.
Close’s comments are tied to conclusions drawn from a new Feeder Cattle Basis report from the RRFA, which seeks to answer whether the CME Feeder Cattle contract is still viable, and if so, how its volatility might be managed.
According to the RRFA research, the contract is still viable and worthy of efforts to support trade volume that would increase liquidity. RRFA analysts say the wide and growing gap in open interest between Feeder Cattle and Live Cattle contracts poses the greatest risk to the Feeder Cattle contract.