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Spring and summer fed cattle futures declined the daily permissible limit on Friday (300 points) as market participants were once again disappointed by prices paid in the cash market. In the last two weeks cash fed steer prices have declined by $7/cwt, a larger than expected drop, fueling fears of significant value erosion going into May and June.
Cattle prices react in about a 6 month to 1 year delay from corn prices. Essentially, cattle prices are a function of the cost of feed, because that is the biggest variable input cost for cattle. With corn prices down over the past 2 years, cattle prices are catching up on the downside. It looks like a long term bear market now in cattle and hogs.
Cattle prices often show short moves that are hard to understand. But in the long run, the August and October contracts seem to be undervalued for fundamental reasons.
