Markets Now: China Hype Creating Imbalance in Cattle Markets

Live cattle futures have faded off the highs seen in mid-March – a sign one analysts thinks is a signal the seasonal price highs may be already baked in for now.

“With the price action we’ve seen for three weeks now, I think it’s pretty obvious the seasonal top is in,” said Don Close of Rabo AgriFinance. “At the rate we’ve declined off that $128, $129 high, do I think there’s another opportunity when we reach the peak of that grilling season – April, May- to run back toward the top again? I think so.”

If prices climb as seasonal demand picks up, producers should be aggressive in selling, according to Close. However, the live cattle market isn’t his biggest concern right now. Instead, it lies within the feeder cattle side of the markets. Hype surrounding China – and the added demand it could create- has really dominated that market, he adds. Hope that a deal with China will happen – one that includes beef trade - is something Close thinks is driving prices.

“I’m a little bit concerned about the conversations around China, and that the momentum is creeping into the feeder cattle markets faster than the live cattle markets,” Close said. “I’m a little concerned that the season improvement in feeders is a little ahead of itself.”

The live cattle and feeder cattle markets are out of balance right now; a sign that lower feeder cattle prices could be on the horizon, added Close.

“When you run break-evens on feeder cattle and where they’re trading today – the index or futures- against live cattle, we’ve already bid the margin out of it,” Close said. “We just need to see some balancing.”