July 29, 2021









Cash Cattle


The change in trade patterns started last week and is more obvious this week. Thursday's arrival shows only a few to no cattle trade in most regions -- except possibly Iowa wherre cattle sold for $123-125. One thousand lower quality cattle sold in Texas for $119-120. A few hundred cattle in Kansas sold for $122 -- $3 higher, and almost nothing in Nebraska. The convergence of several bullish events are weighing on the market this week. Smaller show lists and rising box prices have triggered resistance to small gains offered in packer bids. Asking prices in the north were mainly $126 and $123 and expectations were to achieve those prices.


The rise in box prices has added $7-8 to the cutout this week. Cattle owners are insisting on a fair share of that margin and this week will test their ability to increase their trade leverage. Packers, knowing supplies are dwindling, extended delivery times the past few weeks and are able to hold off sharply higher prices up until now.   


Close outs for current cattle show a mixed bag of profit or loss with some cattle in the plus column and others showing red ink. Processors are holding on to a generous $500/head margin. Grazing cattle sold off pasture are returning small profits that are getting larger. Each individual operation has a unique profile of inputs that depend on when they booked grain and at what price and if they accompanied the cattle inventory with CME hedge positions.


Cattle Futures. Cattle futures are in a hold pattern awaiting news from the cash markets where trade volumes have been light. The premium in the October contract will cause some sellers to hold cattle past the expiration of the August contract. Momentum traders are waiting for cash news to signal a breakout to the upside.


The Comprehensive Fed Cattle Weekly Report offers the most current information on the current status of fed cattle being harvested. The report is published each Tuesday and includes the previous week's change in carcass weights and quality grading. The latest report shows carcass weights up 7# at 866#. This is 22# over 2019. Quality grade grading was up .3% at 80.5%. The data is supporting ideas of a more current herd status.


Forward Cattle Contracts:  Forward contracts will always bear some relationship to the corresponding futures month closest to the delivery month for the cattle. Basis levels will move up and down as processors want to add to forward contracts or not. Sometimes the forward contracts are associated with forward sales of beef and sometimes not. Packers may simply try to add an extra margin for taking the price risk off the hands of the producer.  The best basis trades in the regions would be the northwest.


Weekly graphs on the Comprehensive Weekly Fed Cattle Report break down the categories of trade for the week according to 1) formula cattle; 2) negotiated live; 3) negotiated dressed; 4) and forward contracts. Some cattle included in the formula category are week to week negotiated grids and not committed cattle to one plant. Other cattle designated as formula are "over the tops" where packers purchase cattle at $1-2 over the highest price paid in any given region.


The Cutout. The cutout has turned sharply higher as strong demand is apparent during a period of seasonal softness. Export markets are showing signs of reentry into our market. Lower box prices and improvements in shipping channels have caused foreign buyers to jump back into the market. Buyers also are looking at futures and expecting higher prices to come and are willing to take on more inventory. The export markets currently are purchasing 20-25% of all of our beef.




Choice CutoutChoice Price Change
273.16Up $3.43
Select CutoutSelect Price Change
256.12Up $2.18



Beef Feature Activity Index. There is always a lag between increases in wholesale beef prices and meat counter prices in the supermarkets. Likewise restaurants are always reluctant to revise menus frequently. Extreme price fluctuations on both side of price movements, are damaging to the demand for beef. Eventually all of the recent price movements in box prices will work the way through the supply chain and may never be felt by consumers because the spikes up and down are absorbed in the retail markets.



Replacement markets


The slowdown in feedyard placements has triggered a large rally in feeder prices. The grain dialogue has switched from corn to wheat where hot dry weather has damaged the spring wheat crop. Grain prices will continue to dominate the dialogue regarding replacement prices.


Supplies of feeder cattle are smaller and grazing conditions in much of the plains is excellent. Even some of the worst drought areas of Arizona, New Mexico and Colorado are now receiving rain. Premiums in the feeder futures have turned into reality and are now joined by improvements in the basis levels of current trades.


Oklahoma City. -- Prices on all classes of cattle were $2-5 higher as demand for all replacement cattle shoots higher.


OKC West  -- Prices were $6 higher on good volumes of local cattle.


Feeder Cattle Futures. After blowing through $160, feeder contracts were softer.


Feeder Cattle Cash Index. The index is tracking the moves in cash prices.   


Forward cattle contracting. The gap between current cash prices and expected premiums in the futures market has narrowed. The premiums built into deferred feeder futures have largely been realized. The many video auctions of mid and late summer will market many of the fall cattle in forward market. Both calves and yearlings will be on offer for fall in the upcoming weeks.


National Weekly Feeder Summary released on Friday of each week tracks the national prices by region for last week.   


Grain Futures. Corn prices were were near flat. Crop reports are beginning to estimate crop yields. Excellent yields are forecast for the eastern corn belt while the western areas with less moisture are estimated lower than normal. Basis levels for new crop corn continue to weaken. There is little reason for any farmers, with grain inventory in the bin, to hold on to the grain. Corn basis prices at Guymon, Oklahoma is $1.50 over September futures. Some of the drought areas of the western end of the corn belt are recovering from the hot, dry, summer period.


Weather forecasts and maps are continuing to improve. The technology is faster, the scans have more resolution, and the forecasts are more accurate. The real time moisture measurements are precise for location and better than rain guages. The 5-10 out forecasts are now as accurate as the 1-5 day forecast two years ago. More satellites are measuring more variables and the futures markets for crop prices is heavily influenced by small changes in the weather patterns on daily updated forecasts. The price guesses for crops now is influenced more by what is forecast 10 days out than what is occurring now.






To become a factory farmer or avoid being a factory farmer, one needs to understand the definition of a factory farmer. To enlighten those engaged in livestock production, the question was posed to two prominent Senators – Cory Booker and Elizabeth Warren. The staff at both offices chose to avoid a direct answer and referred the inquiry to the web where the definition is defined by those opposed to animal agriculture.  


 “Factory farmer” is a pejorative term used by opponents of animal agriculture to label those raising and marketing animals as uncaring and cruel. To them “factory farming” is the practice of breeding and raising vast numbers of animals in cramped, unnatural conditions while subjecting them to objectionable conditions to harvest their meat, milk, and eggs (among other body parts). To them “Factory Farming” is the opposite of “Family Farming” or the practice of raising animals in a small caring environment sensitive to the well being of the animals.  


The fiction of the “family farm” is the idyllic realm of Ole McDonald’s farm where the cows in the meadow and the sheep is in the corn. This is the dreamland that makes rich people happy when they buy at the farmers market and envision the small farm with perky farm animals running around the farm in perfect contentment. It is urban nostalgia for a long forgotten simple country life.  


The political proposition advanced by Cory Booker and Elizabeth Warren of ridding the country of the factory farmer and returning to the family farmer, is riddled with logical problems and contradictions. There are no corporate farms. Two thirds of all beef producers are small breeders with less than 50 cows. The entire live beef supply chain is managed mostly by individuals responsible for their own farming operations. Each is interested in economies of scale and producing beef at the lowest possible cost – not evil but the nature of any business enterprise. Beef production is a business.  


The 50,000 head feedyard in Kansas is not evil while the 1000 head feedyard in Iowa is good. One is not a factory, and the other is not an exclusive family farm. Both mix feed with a mixer and deliver the feed to feed bunks necessary to finish beef cattle to the consumer’s desired specifications. Both employ cowboys to inspect the cattle daily for herd health and both have nutritionist preparing the properly formulated ration. The Kansas feedyard is not manufacturing parts for a car in an enclosure. It is tending to the needs of the animals just the same as the Iowa feeder.  


The beef industry is not a cigarette manufacturer. Instead, it provides healthful protein that has endured centuries of beneficial use and is a major contributor to the strengthening of the human immune system. Eliminating or reducing meat in the diet runs the risk of making people more vulnerable to disease and lessening the proper attributes of a balanced diet.



Below are links to articles published in the Cattle Report pertaining to industry change. Two important changes are on the table for progress -- supply chain management and animal ID. Both applications will transform and disrupt the industry.






The Case for National ID for Cattle


Reforming the Futures Contract and Cash Trading of Cattle





Sections of the newsletter are redesigned with hyperlinks to the appropriate source pages. The hyperlinks are in light blue within the report.







Regional differences in grain and cattle basises create a difficulty in modeling a national composite for current close outs or a proforma forward look at a breakeven. Readers should consider your own area for adjustments to these models. 




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.

750 # Feeder Steer1,191.75153.90
Cost of Gain 600 pounds669.181.12
Estimated Interest(Prime + 1%)31.12 
Current Breakeven1,892.05139.66
Current Futures1,858.28137.65
Net Profit / Loss-33.78-2.01


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.

750 # Feeder Steer OKC 150 days ago1,035.00138.00
Cost of Gain 600 pounds708.831.18
Estimated Interest(Prime + 1%)24.27 
Resulting Breakeven1,768.10130.97
Current Texas Panhandle Cash1,606.77119.02
Net Profit / Loss-161.33-11.95



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