Will the CME Feeder Cattle Index Top $250 This Week?

It's common to see cattlemen pay less attention to the cattle market when prices are good, but I don't think we can spend too much time discussing the market, its strength and vulnerability, and where fundamental and technical indicators suggest prices could go. Given continued momentum in the feeder cattle complex, the big question is, "Can the CME Feeder Cattle Index really top $250 this week?"

The chart accompanying this column speaks for itself. Both the CME Feeder Cattle Index and the continuous feeder cattle contract are trading at levels not seen since 1991, even beating the high prices of 2014-15. The combination of cheaper corn prices, limited cattle supplies and excellent beef demand has sent the feeder cattle market remarkably higher.

My grandpa, who's full of nifty one-liners, often says, "You're only ever 24 hours away from a drought, snowstorm or flood," and while he may be a bit exaggerative, it especially seems that way in the market.

So, let's discuss some of the prominent factors influencing the feeder cattle market today as well as some of the vulnerabilities that could trip up the market's quest for continued support.

BULLISH FACTORS

First, I believe feeder cattle prices are thriving in today's market because of the limited supply of cattle and robust beef demand. The reassuring component of this market's rally is that the U.S. beef cowherd is depleted to a historical 52-year low, and rebuilding is going to take a significant amount of time. I don't believe we'll see as aggressive of a build-back like the market did in 2014-15 because interest rates are higher and, although this year's calf check will be greater than years past, inputs are still extremely costly. All of this indicates that, because of limited feeder cattle supplies, prices should remain strong well through 2024 and potentially beyond, depending on next year's bred-cow retention.

Second, beef demand has been an unwavering force that's kept the market elevated. Even though consumers are navigating their way through pressuring economic times, they continue to be resilient buyers of beef, which helps keep the flow of cattle moving through the supply chain.

BEARISH FACTORS

My grandfather's one-liner may seem a little dramatic, but if there's one place where either snowstorm, drought or flood could happen and change things in the blink of an eye, it's in the cattle market. Even though I find myself being more optimistic in this market than cautious, I don't think it's ever wise to overlook potential risks.

In today's market, I find our economy to be an unnerving, nail-biting factor. I mentioned earlier that beef demand is excellent, but will consumers, at some point, become so financially taxed that they either stop buying beef or do so less frequently? If that happened, it would instantly affect packer demand, slaughter speeds and the currentness of feedlots and cash cattle prices.

There are other looming factors that could negatively affect the feeder cattle complex, such as greater feeder cattle imports, an unforeseen spike in corn prices or a lack of feeder cattle buyers as prices continue to work their way higher.

At this point, I find the trickle-down effect of a weakened economy and an exhausted consumer to be one of the market's greatest fears.

So, back to the million-dollar question: Can the CME Feeder Cattle Index break $250 this week? I don't think it's out of the question. Traders are in tune with the market's long-term bullish outlook and have continued to drive both the live cattle and feeder cattle contracts higher despite fed-cattle prices trading steady to somewhat lower last week.

We'll see what the market accomplishes by Friday's end, but I believe there's far more in store for this market's rally than what we've already seen.

And, if buyers want feeder cattle to line their bunks, supplies are only going to get thinner the further we trail through 2023.

Onward and forward, friends!

ShayLe Stewart can be reached at [email protected]