Calf prices have not reached the record levels posted early in 2012, but the heavier-weight feeder cattle are now at record high levels. The CME Feeder Cattle Index (Index) is often used as a barometer for feeder steer prices in the U.S.

At a recent livestock producer meeting, I was asked to explain the Index. Since CME Group feeder cattle futures are cash settled rather than requiring actual delivery of cattle, all open contracts after termination of trading on the last Thursday of the contract month are settled with the Index price.
 


The Index is based on a sample of the USDA Agricultural Marketing Service (AMS) reported transactions for 650 to 849 pounds. Medium and Large #1 and the combined #1 and #2 market classes of feeder steers.

The sample consists of all feeder cattle auction, direct trade, video sale and Internet sale transactions within the 12-state region of  Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming for which the number of head, weighted average price and weighted average weight are reported by AMS.
 


The actual Index is a 7-day weighted average price, which is computed and released every weekday on the CME Group website. The Index is a good proxy for the current U.S. feeder cattle cash market, while feeder cattle futures prices are what traders are willing to buy and sell at for future contract months.

The previous record high Index price was $157.45 per hundredweight (cwt.), which occurred on Feb. 24, 2012. That record was broken recently, on Sep. 24, when the Index reached $157.48/cwt. The Index price continued to move higher the rest of the week.
 
During the life of a feeder cattle futures contract, prices may be above or below the current Index depending on trader's expectations for the future. But, the Index and the expiring futures contract price are always very close at maturity.

For example, the last day of trading for the September feeder cattle futures contract was Thursday, Sep. 26. The futures contract settlement price for that day was $159.55 compared to the Index price of $159.36.
 


The Index was record high, but the futures contract settlement price was not. The September futures contract high occurred back on Jan. 7, 2013 with a $164.25 settlement price. The Index price for that same day was $150.78.
 
Since the index is an average, some geographic areas will have higher cash prices with others experiencing lower prices. Producers should be aware of their basis, which is the difference between the local cash price and the Index or futures price.


The Markets 

Fed cattle prices continued to increase seasonally last week. Across the 5-area market, liveweight steer prices averaged $125.80 per hundredweight up $1.73 for the week.

Dressed weight prices increased $3.53 to average $199.18 for the week. The boxed beef market also strengthened with choice at $193.43 up 49 cents for the week. Calf and feeder cattle markets were mixed with most showing higher prices, especially late in the week. Corn prices in Omaha were down 47 cents per bushel at $4.56.

Tim Petry is a livestock economist for North Dakota State University Extension Service. This originally appeared in the “In the Cattle Markets” newsletter.