Feeder Cattle

Albeit by only a few tics, I didn’t get the close or new high I would have liked to have seen on the March feeders.  This may not be near as significant as I thought due to nearly all the other contract months having set a new high close today from the 12/22 low.  Recall feeders didn’t make a new low in January as did the fats.  Two factors continue to stand out.  One is the dramatic change in the basis from positive to negative.  The abruptness of this change was in stark contrast to other moves.  Second is that I’m noticing at inception of new contract months they are premium.  For the past 2&1/2 years the new contract months came on the board at discounts and at times severe.  These two changes set up what I perceive is coming down the road.  Were the inventory report to show that elevated heifer placement and cow kill could begin to turn expansion horizontal or down by the end of this summer, it could set the stage for a really wild ride.  That being that demand has remained or increased and the call goes out once again to expand.  One, this would take inventory off the market initially and it would be a minimum of 3&1/2 years before the newest product hit the store shelves.  It was this factor that pushed prices so hard and fast from May of ’13 to October of ’14.  It wasn’t elevated beef demand, it was a shortage of beef with lots of forward contracts from retailers that had to be met.  I know this is a long way from now, but it is something to start simmering on.