October 31, 2014
CATTLE MARKET REPORT AND ANALYSIS
PLAINS MARKET TALK
Larger show lists. soft end of the week box prices and
declining futures weakened the resolve of cattle owners and light volumes of
cattle moved at $2 lower prices. Cattle sold for mostly $168 with dressed
sales ranging from $263 to mostly $265. Futures fell a dollar in the
deferred months following the expiration of the October contract.
Corn is developing a starring role in cattle prices as
pricing rally 50 cents a bushel off pre harvest lows. With a record harvest on the
horizon and farmers reluctant to accept prices that crept down close to $3
on the futures and, adjusted for some horrible basises in the north, corn
sometimes approached half that price in the cash markets for some areas.
Corn has a direct impact of newly purchased feeder cattle and also
influences target weights on fed cattle as producers attempt to maximize
weight in order to reduce breakevens.
The initial reaction to the new trading hours for cattle
is positive. One flaw in the structure is the settlement price and time of
settlement. The current settlement is in the pit at 1:05 pm. The
settlement is due to change in December to a weighted average of the pit close and Globex close at
1:05 PM central. This leaves the trading to continue on Globex
until 4 PM. CME should use the Globex
close at 4 PM exclusively.
With processing margins deep in the red, packers were able
to move box prices higher this week with a leveling out to softer tone at week's end. While gains might fail to offer
relief from red ink, they will moderate the losses. Slaughter rates are
extremely light at 553,000 head -- a very low number for a non holiday
kill. Choice box prices were quoted at $252 with select at $240 and the
spread at $14.
The fall heavy runs are over and supplies will tighten
into year end. Stocker and feeder cattle prices were mixed this week with
feeders feeling the pressures from rising corn prices. Heavier feeder steers were in good demand and prices firm
responding to an immediate need for more fed cattle. Lighter weights were
soft in price. All light weight calves were higher as stocker operators
build inventory for winter grazing. Receipts were down from last year and
peak offerings of cattle is past and smaller offerings will keep demand good
for replacement cattle.
Corn futures prices leveled out towards week's end. The
crop is estimated to be close to two thirds harvested. Farmers are proving to be
reluctant to sell this year's crop into the current price level. The corn
basis in Guymon, Oklahoma is currently quoted at +$.50. Corn is
now pricing into rations at $7.50 in the Oklahoma Panhandle.
TROUBLE AT THE BEEF PLANTS
Week before last, fed cattle prices reached $164. This
slightly exceeded the all time high in some regions, but more importantly,
the last time prices were this high, the box prices were $10 cwt. higher.
Add to this fact a $6 rise in the live prices this past week and, as if to
add insult to injury, a $2 drop in box prices on Friday. Put them all
together and you have big time trouble at the beef plants. Current losses
are estimated between $100-150 a head.
As anyone who has owned cattle knows, no one is entitled
to a profit. Passing along information to buyers about the breakeven and the
prices necessary for a profit, will fall on deaf ears. The best you are
entitled to is a bid if the buyer happens to be interested. While sometimes
losing money is part and parcel of the business in which we find ourselves,
losses also can be a reflection of larger problems, and solutions not
Some of the problems at the beef plants are of their own
making. Cattle are in short supply and arranging supply to fill
slaughter needs from mostly committed sources, ignores one critical factor.
The last remaining few cattle in the open markets must be acquired to
complete the needs, and if those few cattle are in strong hands then the
price can be extremely volatile. Those few cattle then price all the
In an open market with no committed cattle, bids would
have started at $164 then worked higher during the week with a few cattle
purchased at each incremental dollar increase in price. Pricing
cattle, basis the cattle futures market, also would result in a more
diversified price structure probably averaging around $167.
The coming year is likely to be the toughest for
processing and cattle feeding. Processors will be faced with short supplies
of cattle and an abundance of pork and chicken. This will make it tough to
ratchet up box prices in the face of large supplies of competing meats.
Cattle feeders will be faced with record breaking feeder cattle prices and a
consumer who has a lid on prices they will pay for beef.
As they say, it will all work out in the end, but in the
interim some pain will be felt by processors and feeders. As the herd
expands, relief will be felt in all segments of the beef pipeline. The year
end cattle inventory will likely show a larger herd than last year. Next
month's cattle on feed report will likely show more cattle on feed than a
year ago. And finally this time next year, the consumer will likely be
paying less for beef than this year.
The Cattle Report introduces the FEEDER METER. The report
estimates profit or loss for currently purchased feeder steers and projects
a result 150 days out. The chart
is interactive and updated every 15 minutes in real time based on changes in
futures markets in grain and cattle. Corn basis information is based on
current trade prices adjusted every two weeks. Feeder prices and fed cattle sales are
par the appropriate futures contract.
CURRENT CLOSE OUT
The Cattle Report estimates current profit or loss on
cattle placed on feed 150 days ago. This report generated from
industry averages attempts to simulate a typical close out based on
prevailing purchase prices for a feeder steer 150 days ago. The close out
assumes grain was purchased at market each month. Selling prices and
interest rates are based on prevailing benchmark quoted prices. This chart
will change weekly.
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