In a February 6 Barchart article, I highlighted how climate change initiatives are putting upward pressure on cattle prices. Live and feeder cattle futures prices have been trending higher since the April 2020 pandemic-inspired lows. In late 2022, and early 2023, there were few signs that the offseason for demand caused the cattle futures to suffer significant downside corrections.
With under three months before the beginning of the 2023 peak grilling season, prices continue to trend higher. The iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW) moves higher and lower with cattle and other livestock prices.
The bullish trend in live cattle futures continues
In April 2020, the global pandemic caused live cattle futures to decline to 81.45 cents per pound, the lowest price since December 2009.
The chart highlights the steep bullish pattern of higher lows and higher highs that took nearby live cattle futures to $1.6610 per pound in early March 2023. At over the $1.65 level on March 3, live cattle for April delivery remained close to the high. The all-time $1.71650 high was in November 2014. The ongoing two-year bullish trend suggests that a challenge of the all-time high could be on the horizon in 2023.
Feeder cattle futures are also rallying
Feeder cattle futures have followed a similar bullish path. After falling to $1.0395 per pound in April 2020, the feeders made higher lows and higher highs.
The chart highlights the decline to the lowest price since March 2010, before the feeder cattle futures turned higher from the April 2020 and moved steadily higher, reaching $1.9110 per pound on the continuous contract in early March, with the April feeder hogs closing at over $1.96 per pound on March 3.
While the live cattle futures are within striking distance of the all-time high, the feeders have a way to go to reach $2.4520, the October 2014 record peak.
Cattle are historically expensive compared to pork
The live cattle versus lean hog futures spread measures the historical price level of beef compared to pork.
The chart ({LEJ23}/{HEJ23}) shows the median level of the spread dating back to 1970 is the 1.40 level or 1.4 pounds of pork value in each pound of beef value. When the spread is below the long-term median, pork is historically expensive compared to beef. At above 1.95 on the April contracts, the spread is far above the long-term median level, telling us beef prices are expensive compared to pork historically.
Input prices underpin cattle
Inflation has increased the cost of producing most commodities, and cattle are no exception. High energy, labor, feed, financing, and other costs have increased the cost of producing each pound of beef, pushing live and feeder cattle prices higher.
Meanwhile, the highest feed prices in years are a function of the ongoing war in Ukraine. Russia and Ukraine are Europe’s breadbasket, causing agricultural commodity prices, which are critical feed ingredients, to rise and supplies to decline. Russia is also a leading fertilizer producer and exporter. Since fertilizers are crucial farming inputs, higher prices and Russian bans on selling them to “unfriendly” countries supporting Ukraine caused fertilizer prices to soar and shortages to develop.
Meanwhile, Russia is also a leading traditional energy producer, causing the demand for corn and soybeans to rise for ethanol and biodiesel production. The war has caused energy prices to rise, translating to increased grain and oilseed prices and higher feed prices for ranchers raising cows and other animals.
As I mentioned in the February 6 article, environmentalists have objected to cattle production because of the methane released into the atmosphere, which could limit output.
The peak season could lift prices to record levels over the coming months
Live and feeder cattle futures are in bullish trends, and the 2023 peak grilling season is now under three months away. As the demand for beef products rises over the coming months, it will likely put upward pressure on cattle futures prices. The trend is always your best friend in any market. The bullish price action since the end of the last grilling season that ended in September showed that beef prices ignored seasonal factors, which points to tight supplies.
At the current pace, live cattle appear to be heading for a new record high, and the feeders could move above the $2 per pound level for the first time since 2015. The most direct route for a risk position in the live or feeder cattle market is via the CME futures contracts. The iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW) provides an alternative for cattle exposure going into the 2023 grilling season.
At $39.39 per share, COW had $27.97 million in assets under management. COW trades an average of 13,520 shares daily and charges a 0.45% management fee.
The chart illustrates COW’s rise from $26.40 in April 2020 to $41.81 in February 2022. At over $39 per share on March 3, COW remains close to the high and in a bullish trend.
The months before the grilling season are typically a bullish time in animal protein markets. Seasonality and other factors favor continuing the bull market in live and feeder cattle futures.
More Livestock News from Barchart
- Friday Bounce from Hog Market
- Cattle See Strength on Friday
- Hogs Firm Up for Weekend
- Cattle Higher through Friday’s Midday
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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