23 April 2010

4 minute read

North America

Basis Strengthens in Nebraska, Flat in Texas

For the latter part of 2009 and the first part of 2010, fed cattle basis in the northern plains was weak relative to basis in the southern plains, particularly in the Texas/Oklahoma market. That situation has reversed over the past month, as prices in Nebraska have increased more than prices in the south during the recent fed cattle market rally.

Fed cattle basis in the southern and northern plains, although seldom equal, typically follow a consistent seasonal pattern. Basis in Nebraska has tended to strengthen steadily through about the first twenty weeks of the year (i.e., until about mid-May), while basis in Texas/Oklahoma and Kansas has tended to remain more-or-less steady through the first quarter before strengthening into mid-May. This is based on the most recent 3-year average of weekly fed steer basis in the Texas/Oklahoma, Kansas, and Nebraska markets for 2007 through 2009. Basis in all three regions then tends to weaken as seasonal factors bring declining cash prices in the summer months. In light of these tendencies, the recent change in relative basis between the north and south is not all that unusual. However, it is the speed at which basis in Nebraska has gained strength – it started strengthening later than normal and has reached its typical peak earlier than normal – as it has moved from $3.50/cwt under to $2.50 over in about a five week span as compared to a typical time frame of ten weeks. At the same time, basis in Texas/Oklahoma and Kansas has remained flat.

The harsh winter that was experienced by feeders in Nebraska has likely led to less availability of market ready cattle over the past few weeks. History shows that more cattle finish as Choice or better in Nebraska as compared to Texas/Oklahoma. So, the short number of market ready and futures contract compliant cattle has pushed prices in the state higher and faster. Although this information is not groundbreaking, as we have been inundated with news and reports of this phenomenon since the inclement weather began, the implications it is having on basis is important for feeders in all regions. Basis weakened in all three regions this past week – by about $1/cwt in Nebraska. Feeders could well be disappointed if they are relying on a stronger basis through May.

The Markets

Trade on cash fed cattle markets took place early in the week again this past week. The five area average price for live and dressed steers was slightly lower from the previous week at $99.55 and $159.26, respectively. Feeder cattle volume in Oklahoma City last week was at 12,108 head compared to 7,569 the week prior and 6,658 last year. Favorable prices and dry weather likely led many stockers to pull wheat pasture cattle earlier than normal. Boxed beef was higher by $1 to $2 last week – trading at $166-167 for Choice and about $164 for Select. The mostly steady cash prices and higher boxed beef prices helped curtail early week losses in the futures market. Feeder cattle futures were off about $2 as live cattle futures were lower and corn was up. The weaker U.S. dollar helped propel corn higher last week despite favorable weather and mostly lower crude oil.