Cattle prices remain high, but there has been a decline in futures prices leading to a shift in focus for hedgers. A steady stream of strong sell signals has moderated. The futures prices for live cattle and feeder cattle have fallen to levels that are more in line with the fundamental price projections from USDA. As a result, producers with cattle to sell in the coming months are now getting a signal to use protection strategies instead of pricing strategies. There is some upside potential for prices, especially on live cattle. Common protection strategies include buying put options, buying livestock risk protection and using synthetic puts. These strategies give a floor price and leave the upside open to price increases.

The latest Cattle on Feed report confirmed trade expectations of a high number of cattle on feed for December 1. However, the trade did not expect placements as high as reported. Placements were higher across plains states, including South Dakota. Gauging supplies in the area is difficult because while Iowa and Nebraska are in the Cattle on Feed report the other neighboring states are not. The AMS committed and delivered report gives a breakdown of fed cattle deliveries from the Dakotas, Wyoming and Montana. Those deliveries average about 80,000 head per month. However, deliveries since July have been well-below 2010 levels, suggesting tighter supplies for the region.

Prices in the region continue to be relatively high compared to other locations and for this time of year. The basis on fed cattle at Sioux Falls Regional Livestock has been very narrow for the past four months. The basis on South Dakota stockers has been very high since October, reflecting lower corn prices and continued high live cattle futures prices. Seasonally, stocker basis improves in the early months of the year.