Cattle futures have taken another turn over the past two weeks as prices have drifted lower, correcting the big December 17-24 advance. So far, February futures have corrected 50% of the rally on this week’s pullback to 131.00 cents/lb. While futures have set back, fed cattle prices have held up fairly well. The five-area average rebounded from a low near $117/cwt in mid-December to $132/cwt last week. Some light cash trade was reported early this week at $134.

 After gains of more than $40/cwt over three weeks, beef values consolidated this week. Even so, the beef price strength has boosted packer margins and should be supportive to the fed cattle market. Carcass weights are declining seasonally and the year-over-year increase has narrowed to 9 pounds from 30 pounds last fall.

In this month’s update, USDA raised 2015 production by 35 million pounds to 23.7 billion, but cut the 2016 projection by 75 million to 24.605 billion.  The price forecast was essentially unchanged from last month with the midpoint 2016 forecast at $137/cwt. The trade forecast was a little positive as USDA cut 2016 imports by 100 million pounds to 2.845 billion and raised exports by 50 million.

While cattle prices may decline a bit further over the near-term, we expect the market to work seasonally higher through winter into early spring. Winter weather and beef demand will be key factors in determining the extent of seasonal gains, but expect prices to reach the low $140s/cwt for a seasonal high.