Live cattle basis refers to the difference between the cash price of live cattle and the futures price of cattle on a specific date. The futures price is the price at which cattle are traded on the futures market while the cash price is the price at which cattle are sold in the physical market. The difference between these two prices is the basis. Basis is a simple math equation. It is the spot live cattle cash price minus the futures price.
As a cattle producer, the live cattle basis can directly impact my business. When the basis is high, it means that the futures market is bullish, and prices are expected to rise in the future. This could be an excellent opportunity for me to sell my cattle and make a profit. On the other hand, when the basis is low, it suggests that the futures market is bearish, and prices are expected to fall. In such cases, I may choose to wait until the basis improves before selling my cattle.
The live cattle basis is influenced by several factors, such as supply and demand, quality, and location. When the supply of live cattle is high, the basis tends to be lower since there is an oversupply of cattle in the market.On the other hand, when the supply of live cattle is low, the basis tends to be higher since there is a shortage of cattle in the market. The quality of the cattle also plays a role in determining the basis. Cattle that are of high quality tends to have a higher basis since they are in high demand, while cattle of poor quality tend to have a lower basis since there is less demand for these types of cattle. Location is another factor that influences the live cattle basis. The basis can vary depending on where the cattle is located since transportation costs and other factors can influence the price.
"As a cattle producer, I need to keep track of the live cattle basis to make informed decisions about when to sell my cattle. However, I must also understand that the basis is just one of many factors that determine the market price of cattle. Other factors such as weather, feed prices, and government policies can also impact the price of cattle." ~Tom Fanning, Manager
The week of 4/24 April Live Cattle Average Price was $178.61, and the April Futures price of $175.15 gives us a basis of $+3.46. With the April Live Cattle expiring and the June Live Cattle contract being the lead month, the first week of May begins the transition. June Live Cattle traded on Tuesday 5/2 at $162.90 with cash cattle trading at $172 and Wednesday 5/3, the June Futures closed at $161.65 with more Cash cattle trading at $172 so the basis for Tuesday traders was $+9.10 and with the futures lower and cash steady $172 the basis improved to $+10.35. For the cattle owners who sold on Wednesday 5/3 they were able to put an additional $1.35 per cwt in their pocket. This adds approximately $15-$17 per head to the bottom line.
- Tom Fanning
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