Sort & Cull

While I'm about as Irish as Kim Jong-un, the classical blessing from the Emerald Isle has always moved me at the deepest level. You know, the one that begins: "May the road rise up to meet you."

Actually, it's a pretty good late-spring prayer for anxious cattle feeders torn between fairly solid cash ground on one hand and significantly discounted futures on the other. While it's not at all unusual to see fed steers and heifers trade dollars above spot June live futures immediately after Memorial Day, this year's basis is extraordinarily strong with the board (i.e., the sagging road) still struggling $7-$8 below the country market.

Generally speaking, the late-spring basis is running at least twice as strong as the long-term average. The truth is that basis levels have exceeded the historical norm for the last several years thanks to the awkward combination of extremely tight fed supplies and the uncertain consumer embrace of record-setting beef prices.

While the cattle basis could continue to make the record book look like a 90-pound weakling for months to come, we should still experience a good deal of basis softening between now and midsummer. Of course, such a seasonal dance can develop in three different ways: 1) cash can plunge toward the board; 1) the board can surge toward cash; or 3) both cash and futures can moderately step toward the middle.

This is the point where non-hedged feedlot managers can join me in chanting that old Irish blessing.

When cattle futures closed sharply higher on Thursday (i.e., with spot June seriously threatening to kick in the door of overhead resistance between 154-154.50), I started to believe in four-leaf clovers and pots of gold. But just a short trading day later with the board groaning with triple-digit losses and beef cut-outs in a state of collapse, a cash-friendly version of convergence seems as promising as the potato famine.

To muddy the basis waters even further, some dressed cattle in Nebraska Friday afternoon have sold fully steady with last week (i.e., $252-$253). I suppose the ongoing confusion should remind all the optimists in the room that sometime you just have to live with the wind in your face and blinding sun in your eyes.

Come to think of it, that may be why they make Irish whiskey.

For more of John's commentary, visit http://feelofthemarket.com/…

(ES)