Canfax analyst Anne Dunford has taken a shot at forecasting what fed cattle prices will be this summer and fall if the border reopens for live cattle.
Traditionally, Canadian prices track American prices, taking into account the exchange rate and the basis, which is the cost of shipping cattle to U.S. packers.
She notes that the Alberta cash to Chicago futures basis for the first quarter of 2004 has been $20-$23 under, compared to a five-year average of $7-$9 under.
She assumes there will be extra costs under the new regime, such as dentition and special permits, which means the basis will likely be wider than the historical average, say about $15 under.
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She used an exchange rate of 76 cents US per Canadian dollar.
We get the following if we apply these numbers to the Chicago live futures close April 12:
- June $78.95 US, or $103.98 Cdn minus $15 basis equals $88.98, a nice increase over the current price of about $80.
- August $77.85 US, or $102.45 Cdn, minus $15 basis equals $87.45.
- December $79.77, $104.98 Cdn, minus $15 basis equals $89.98.
Dunford noted that the $15 basis is an educated guess. The five-year average basis for June is $9.60 under, August $10.50 and December $6.50.
Soybeans fall
Turning to grain, the market’s reaction to the April 8 United States Department of Agriculture report was surprising.
The soybean numbers would have normally supported prices but after an initial rise, prices fell and closed lower than the previous day. They fell again when the market reopened April 12.
Market watchers said the April 8 trading pattern marked a key reversal, an important signal to technical traders that the rally had reached its top.
The reversal might also have been driven by fundamental news in the back of traders’ minds.
Farmers had delivered a lot of soybeans during the rally and crushers now have a short-term glut of meal. As well, more South American supplies are moving to export channels.
Another factor perhaps at play in grain market thinking is expectation of a strengthening U.S. dollar.
There was strong U.S. job growth in March, leading to speculation that U.S. interest rates will rise, causing the dollar to appreciate. That would make U.S. grain more expensive on the world market and dampen demand.
