Live Cattle Basis

(Photo: SDSU College of Agriculture, Food and Environmental Sciences)

Futures prices are from organized trades that provide price information for buyers and sellers of commodities. Local cash prices can be compared to futures prices using a basis measure. Basis is defined as a cash price minus a futures price. With an expected basis measure, producers can observe futures prices and infer cash prices.

For live cattle, the futures market reflects the expected value of finished steers and heifers delivered to auction sites and packing plants located from South Dakota to Texas. The underlying cash price follows a seasonal pattern that is relatively high in the spring and relatively low in the summer reflecting the supply of cattle and the demand for beef. Changing marketing patterns over time have influenced the level and variability of live cattle basis (Wilder, Tejeda, and Johnson, 2018).

Historic basis levels for livestock are generally computed monthly and are usually a cash price relative to a nearby futures price, that being the futures contract that is the closest to expiration. Live cattle futures are listed and traded for even months of the year. Thus, historic live cattle basis for January and February would be the cash prices for those months relative to the February futures price during each month.

The basis levels observed during 2025 specific to Sioux Falls Regional Livestock, in Worthing, South Dakota, were higher than expected except during December. A shortage of high-quality cattle in the northern plains for the year resulted in prices generally increasing throughout the year, leading to basis levels above expectations.

For 2026, there is nothing about local supplies or transportation cost changes that would suggest the basis levels would be different from trend levels. A five-year average of historic basis levels smooths out small variations for a given year and incorporates more persistent seasonal patterns in the underlying cash prices (Table 1). Other combinations, and incorporating current-year basis patterns, can be optimal for specific time periods and locations (Tonsor, Dhuyvetter, and Mintert, 2004).

The expected basis varies by month and can be added to observed futures contracts arriving at expected cash prices. The expected basis early and late in the year suggests the cash price would be less than the futures price, with a difference consistent with transportation costs between Worthing, South Dakota and slaughter facilities. The large basis in May reflects the historic seasonal high in May ahead of the lower price in June.