May 27, 2015  

                    

CATTLE MARKET REPORT AND ANALYSIS

 

 

  

PLAINS MARKET TALK

 

The markets were quiet Tuesday for a holiday shortened week. Show lists increased for the second week in a row and while they remained under prior year they were closing the gap leaving a need to increase the slaughter rate. Packers will be hesitant to increase the slaughter rate at the expense of box prices. If we ever reached last year's slaughter levels, the beef production would exceed last year because of the increase in carcass weights.

 

The primary feature of this past week's cash market was the regional change. Nebraska has long been the market leader both grabbing the highest price and holding as the toughest traders. The highest price paid this past week was in Kansas where cash cattle topped at $163 on a couple hundred head. Mid week trading in Nebraska featured sales at $161 but by Friday sellers had to concede prices to $159 in order to clear show lists. Dressed sales Friday in Nebraska were at the low end of the weekly price range of $250-253. The volume of sales last week were larger but packers carefully managed the slaughter rates in order to hold box prices.

 

Box prices firmed in early week trading. This was in part due to the light slaughter of last week combined with a reduced slaughter rate for this holiday shortened week. While we will remain in a good beef consumption period for the next few weeks, retailers are making large margins on pork sales. Choice cuts were $1 higher at $261 and select at $249. The choice/select spread is currently $12.

 

Month long rains and in some cases floods especially in Texas and Oklahoma, are interrupting normal cattle flows. More replacement cattle will be coming and many will be heavy shortening the time spent in feedyards and helping packers who will be looking for kill slots for late summer, especially following the latest cattle on feed report.

The tone in the replacement market is softer and many feedyards were showing receipts in order to manage wet and boggy pens. Many cattle will remain on native pastures that are producing large forage quantities and many in the southwest have not been stocked for several years.  A 750 steer on the southern plains was selling for $220.

 

Feeder cattle purchased last fall reached an all time high not likely to be touched for years. The direction in the coming months will be downward for both fed and replacement cattle. Steers weighting in the 750-800# range topped at $240-$250 cwt.. Those cattle will be moving to market during this time frame and in spite of the fed market that has held $160+, losses will be significant.

 

Corn prices fell again as the crop is mostly planted and 75% is in good condition. The corn basis in Guymon, Oklahoma is currently quoted at +$.65 over the July contract. Corn is now pricing into rations at $7.50 cwt. in the Oklahoma Panhandle.

 

 
                        

 

THE KNOWERS

 

THE KNOWERS   The food reform movement is active, vocal and not likely to go away. The banner under which they parade is a noble one – consumers need to know more about the origin of their food and how it is grown, harvested and delivered to the ultimate user. They also demand a healthful safe product and they should.

 

Unfortunately, the leaders of the movement are a disparate lot and operate more as a cult than an investigative force using the tools of scientific inquiry and peer review. The leaders are the KNOWERS. The KNOWERS are a special privileged class of people who have special sources of knowledge available only to them, by way of divine delivery, or their authoritative status, or solely by their claims of special powers and knowledge blindly accepted by their follows.

 

The KNOWERS lead the food reform movement and make many claims most of which fail to withstand the review of logic, reason or science. Some of the claims related to the beef industry are:

 

·        Cattle are forced unnaturally to eat corn during the finishing process.

·        Beef, an unhealthy product, is produced as an industrialized product by factory farmers who care little about food safety, animal health or comfort, nutritional value of the product, or the consumer. 

·        Cattle are crammed into small pens where they are unhappy and suffer throughout their lives. ·        Cattle are filled with antibiotics and hormones tainting the product.

·        Beef production is not a sustainable food model and the planet’s assets and natural resources are being depleted for the production of meat.

·        GMOs are producing Frankenfoods that will have unintended consequences for consumers. These claims are grounded in a belief systems similar to a religion.

 

The KNOWERS provide the claims to the followers and they are accepted on blind faith. The charismatic KNOWERS function much as cult leaders of the past with emotional tugs on the followers appealing to religiously styled moral arguments about “bad” and “evil”.

 

This phenomena has roots in history. The middle ages or “dark ages” were characterized by unquestioned leaders who set forth the truth as they understood it or wanted it. The followers accepted it based on their faith in the King or the Duke or the Archbishop.

 

This medieval architecture was upended by the Age of Reason or the Enlightenment. The Age of Reason extended a right to all citizens to assert their common faculties of reason and logic to not only question the KNOWERS but to postulate their own propositions. This was the foundation of modern empirical science.

 

The beef industry needs to provide a trusted ombudsmen to represent consumers of beef and those concerned about food safety and health. The ombudsman can be charged with creating a forum for questioning and formulating fact based knowledge about beef. This approach will subject self-appointed authorities as well as beef industry advocates to the proper scrutiny that is necessary find flaws and correct misconceptions on beef products and production. Too often urban newspapers with little or no knowledge of agriculture weigh in with stories that fail any journalistic standards. Subjecting various issues surrounding beef production to thoughtful analysis and applied science will benefit not only the beef industry but consumers of beef alike.

 

This new Age of Reason will be a counter-reformation. The counter-reformation needs to remind Michael Pollan that corn is in fact a domesticated grass and his assertion that it is unnatural to feed to cattle as he does in his book Omnivores Dilemma is bunk. Someone needs to be forced to explain at what stage does a family farmer become a factory farmer and what is the difference. Both small and large farmers have the same tools and resources [i.e. a horse, a pasture, a feed bunk, a feedmill, a feed truck, etc.]. How and why is the term “industrial” applied to agriculture? How can we tell if a steer is happy?  We can tell if he is content and that is at the core of good beef production [nutritional balance diet, clean water, health care]. What are the specific antibiotics used in animal agriculture that cause disease resistance in human medicine and where are the studies proving the link? And what is to become of the millions of acres of grasslands that can only be converted to food by ruminants who special stomachs can process the grass? And are we to discard the newly found genetic knowledge that has allowed us to use the genome of plants and animals to short cut time consuming cross breeding of the past. The beef industry is not afraid of these issues, it simply would like to confront them with a knowledge and fact based approach.

 

The counter-reformation needs to assault misinformation in the free marketplace of ideas. The beef industry is not perfect. There are occasions when an animal suffers unnecessarily just as there are occasions when a product is misused. There are floods that sometimes sweep unwanted waste downsteam. To capture an instance of either a mistake or a wrongful act should not be an indictment of an entire industry. Going viral is a social sensation not intended as representative of all beef production but can be a useful tool to helping an industry get better. Hard working people can take the knowledge of imperfections in the system to make corrections and create better production model always sensitive to the integrity and healthfulness of the beef product. We want each and every consumer to know and understand the product beef, how it is produced and how it is delivered to them.

 

 

 

FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE OUT TABLES

 

Readers have been sending notes regarding breakeven projections. One commenter ask how we could use 80 cents for a cost of gain when everyone knows that is too low. Another ask why we are using such a high cost of gain number. The two emails illustrate the difficulty of providing one benchmark for all regions of the country. Currently a typical bases in the corn belt might be $1 under the futures and alternatively a corn basis in Hereford, Texas might be $1 over the futures. The northern feeders have much cheaper grain and more expensive feeder cattle. A more meaningful report would include one breakeven and close out for each major region. It also is difficult maintaining the tables when both fed and replacement prices are changing in $5-10 cwt. price blocks.

 

 

CURRENT BREAKEVEN PROJECTION

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.

INPUTSTOTAL$$CWT
750 # Feeder Steer1,652.25220.30
Cost of Gain 600 pounds482.830.80
Estimated Interest(Prime + 1%)38.83 
Current Breakeven2,169.15160.68
Current Futures2,086.16154.53
Net Profit / Loss-82.99-6.15

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.

INPUTSTOTAL$$CWT
750 # Feeder Steer OKC 150 days ago1,800.00240.00
Cost of Gain 600 pounds541.650.90
Estimated Interest(Prime + 1%)36.17 
Resulting Breakeven2,377.82176.13
Current Texas Panhandle Cash2,171.75160.87
Net Profit / Loss-206.07-15.26

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