September 17, 2014
CATTLE MARKET REPORT AND ANALYSIS
It is important when arranging for cattle supplies to fill
slaughter needs at the beef plants to prevent sellers from knowing the
actual position of a plant with regard to inventory and needs. Transparency
is not the friend of the buyer for a beef plant. Ideas that packers may need
cattle for this week's slaughter spiked renewed buying interest in live
cattle futures. A triple digit loss quickly turn into a triple digit gain by
late yesterday and held this morning.
Short bought packers entered the market in Kansas
purchasing a few cattle at $161 live and $252 in the beef. Most of the
remaining cattle are offered at $7 over
the October board price. Packer
interest in forward purchases into October reflects their confidence in the
market or $164-165. A few cattle were forward bought at $252 in the beef
Choice boxes lost $1 in mid week trading. The value of the dollar has
been quietly moving steadily higher making our exports more expensive and our
imports of beef cheaper. Choice box prices
were quoted at $248 with select at $233 and the spread at $15.
Receipts increased in Oklahoma City but most of the cattle
offerings were weaner calves. Recent rains stimulated interest in lighter
cattle and prices were generally up to $5 higher. Feeder weights sold
steady. Farmers are completing the planting of winter grains. Low corn
prices have turned farmers away from traditional crops and increased
interest in cattle as a primary source of farm income. In the southern plains, a 750# steer brought $226.
Corn prices are leveling out at the current trading level.
Corn fundamentals continue to be weak confirmed by USDA's raised yield
on the crop report last week. This year should be a record crop and abundant
corn harvest is being reported in all areas. Corn basis Guymon, Oklahoma is
currently quoted at +$.90 then declining into prime harvest season. Corn is now pricing into rations
at $7.75 in the Oklahoma Panhandle.
THE BIGGER PICTURE
A view of the beef markets, or any markets for that
matter, can be a multidirectional one and the various perspectives merge and
sometimes diverge leading to the ultimate arbitrator of differences ---
price. Our domestic beef market certainly does not behave in a vacuum.
Influencing beef demand are many factors and forces, most known but a few
unknown. Analysts are constantly reminding us of the importance of job
growth, disposable income, inflation and exchange rates. They all are
important but weighing each is frequently difficult.
Few factors are more important than our exports. Exports
and imports are driven by the absolute value of our beef products but more
importantly by the exchange rates of our currency. The ICE Dollar index,
that had stagnated at close to 80 for most of the year, has recently in the
past month moved the dollar value upward to 84. Few cattle operators track
this index and futures contract but it has a major impact of the volumes of
our exports and imports. The rise of the value of the dollar from 80 to 84
is 5%. These means without any change to beef prices our exports are $8 cwt.
higher on a live steer selling for $160. Alternatively, our imports are
cheaper by 5%.
While those exports of beef products are more expensive,
we are finding more demand from more areas of the world. Beef exports for
the last reporting month of July were down 14% from prior year. But
the good news is the appearance and increasing demand from sources that will
likely chart the future of our export market. Japan continues to be our
number one trade partner but in the top five we are finding some new names.
Hong Kong comes in at #4 and is demonstrating the largest growth in use of
our beef which of course, headed to China. Taiwan is #6 just behind Korea.
The recent change in the dollar is negative for beef
prices but other factors are not negative. The economy continues to improve
and the jobless rate continues to decline. Today's high priced beef is not
eaten only by rich people, it is generally part of every household budget.
Since June, a 19% fall in gasoline prices is extremely positive for the food
budget and beef.
Beef's relative position to other meats has been
surprising to some analysts. Production of pork and poultry is not
skyrocketing but is on the increase but beef continues to be a favorite on
the supermarket shelf. Demand for ground beef appears to be stable and
durable and there is little evidence that turkey burgers are taking market
share. Beef will be in short supply for the next year but increasing
supplies are on the horizon.
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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