In this article, I review what the video auction and futures market is suggesting what the local cash price for feeder cattle will be in Fall 2021. While both have advantages and disadvantages, they each provide important market information, regardless of if they are used by feeder cattle producers. One of the primary differences between these two forms of contracts is that CME contracts are standardized and video auction contracts can encompass more details about the cattle. The advantage is that the cash price is known before delivery. These are production contracts where the buyer and seller agree on a price for a given set of cattle characteristics to be delivered at a certain month and location. The advantage is that these price signals are available many months in advance of when production is physically sold in the cash market and offer daily price signals. An expected local cash price can be estimated by adding a historically observed basis to the futures price that aligns with the delivery month of interest. These prices, available at the Chicago Mercantile Exchange (CME), represent the global demand for feeder cattle. So where do feeder cattle producers go for price information about delivery of feeder cattle in the future? There are two primary market signals. Price (formed at the intersection of supply and demand) is the signal feeder cattle producers respond to about whether to retain or sell feeder cattle. Both increasing the supply of feeder cattle from producers and decreasing the demand for feeder cattle from feedlots can result in lower feeder cattle prices. Worsening drought conditions in the Western United States have caused feeder cattle and cull cows to come to market earlier and higher grain prices due to low stocks-to-use ratios and worsening global corn production have caused a run-up in grain prices lowering a feedlot’s demand for feeder cattle. While there have been positive price movements for feeder cattle, most of the downward price pressure has come over the uncertainty of forage production and higher grain prices. There has been upward price pressure from historically strong retail meat demand and meat exports to China. The feeder cattle market has experienced a significant amount of price variation between March and July.
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