Daily Livestock Trading Limits Increase, NWS Screws With Markets
By Jeff Rose
The CME increased daily limits on Live Cattle and Feeder Cattle futures on June 1. For live cattle, the new initial limit will be $8.50/cwt., up $1.25. The new expanded limit for live cattle will be $12.75/cwt. For feeder cattle, the new initial limit of $10.75/cwt. is $1.50 higher. The newly expanded limit for feeder cattle will be $16.00/cwt.
And just in time for a case of New World Screwworm (NWS) to be detected in Texas on June 3. Many believed the new limits would be tested the very next day. The question was, would markets move up or down?
It turns out that, unlike the bird flu, which had nothing to do with beef cattle, the market responded to potentially tighter supplies by moving higher. We did not test the new limits in the Live Cattle futures, but the front four months of the Feeder Cattle board all closed up at the new limit. The week after the new limits were announced, cattle markets closed in positive territory.
What happens next? My first thought was there is no way the Mexican border opens for several years, and when it does, it won’t matter because Mexico will have increased feeding and processing capacity by then and not many cattle will be available to cross the border.
Mexico has already invested in feeding and processing capacity since the border has been closed.
Another theory is why not just open the border now that we have NWS here? This second theory is troubling to me, mostly because it will be bearish to our markets. There is reason to believe that with the border closed and no means to slaughter their culls, Mexico has built its cow herd up slightly.
On the other hand, we need the cattle and in particular cull cows for hamburger, which may be the most impactful. How will this affect demand? NWS does not pose a threat to our food safety, but consumer perception is hard to predict. The fact is that many large beef-producing countries in South America live with NWS on a daily basis, and it doesn’t affect their food safety or export markets. I still believe the biggest influencer of demand is overall inflation and in particular, gas prices.
As always, a lot is going on in the world that can move cattle markets, and the moves are often big. Cattle feeders have a lot of capital invested right now. Please keep an eye on your breakeven and be looking for opportunities to lock in profits on at least some of your production.
