‘Basis’ and what to do about it...
Chris Swift, of Swift Trading Company, discusses the cattle markets, cattle futures, and the ‘Basis’
“I believe that cattle feeders will begin bidding higher in order to meet contractual agreements or are intertwined within a vertically integrated supply chain. As the production side of cattle nears the end of a brutal expansion and liquidation cycle, the tail end of the liquidation may take the entire first half of this year to finally push cow slaughter back under 8%.
Holding back of heifers is a whole nother ballgame because it suggests a potential 50% cut in revenues from marketing's. Money will be the key factor to expansion and it will be difficult making a business plan that doesn't show red for at least two years when holding back heifers. Backgrounders continue to be in the better shape marketing wise due to premiums available on futures contracts. The cattle feeder is the one that will have to make difficult decisions.”