“If the shortage of feed and pond water were not keeping a lid on price levels, we would undoubtedly be seeing record prices of feeders and replacement females even though fall is usually a season when markets are under pressure,” explained analysts with the Agricultural Marketing Service (AMS) Friday. 

Though volume was light last week due to the Thanksgiving holiday, AMS analysts noted a higher undertone on early-week sales. Futures and fed cattle markets reinforced the price optimism.

Cash fed cattle trade Wednesday was at prices generally $1-$2 higher than the previous week on a live basis ($126-$128/cwt.) and generally $4-$5 higher in the beef ($200-$201/cwt.).

Fed cattle prices received a lift from firmer wholesale beef prices. Week-to-week, the daily Choice boxed beef cutout value was $3.31/cwt. higher ($196.33/cwt.) and Select was $1.09/cwt. higher ($174.17/cwt.). The Choice-Select spread was $22.16/cwt. Friday.

In turn, the wholesale market seemed to benefit from the most positive outside markets since the presidential election. Week-to-week, the Down Jones Average closed 421 points higher. The broader S&P 500 was 49 points higher.

More than anything, investor optimism in light trading last week seemed to be tied to chatter from both sides of the aisle that they can and will reach an agreement in order keep the nation from traipsing over the fiscal cliff.

Anyone who doubted the seriousness of failure to find a resolution only had to listen to Federal Reserve Chairmen Ben Bernanke. Speaking the New York Economics Club Tuesday, Bernanke explained, “…The realization of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery – indeed, by the reckoning of the Congressional Budget Office and that of many outside observers, a fiscal shock of that size would send the economy toppling back into recession…”

All told, Live Cattle futures closed an average of $2.54 higher through the front half of the board week-to-week; and an average of $1.66 higher through the back half, except for 20¢ lower at the very back.

Week-to-week, Feeder Cattle futures closed an average of $2.20 higher across the board, except for $1.20 higher at the very back. And that was with corn futures closing an average of 21¢ higher through the first six contracts week-to-week.

A Closer Look: Cattle Rallies To Record As Beef Supply Shrinks Before Christmas

Futures also seemed to get a lift from Wednesday’s monthly USDA Cold Storage report, which pegged total red meat supplies on ice at 2% less than a year earlier, though still 14% higher than last year. Frozen beef supplies were down slightly from the previous month and 2% higher than a year earlier.

Though cattle supply declines reflected in the most recent Cattle on Feed report may have been anticipated, AMS analysts say, “…the results still show a glaring portrait of how tight supplies of feeder cattle have become. Plus, calf  crops are expected to become even smaller after the Midwestern drought caused another massive herd selloff and the conditions made conception rates plummet on younger cows and replacement heifers.” 

“Profits are currently tight but opportunities are on the horizon and thinking needs to be forward,” AMS analysts say.