PLAINS MARKET TALK
Cash Cattle. Packers were still trying but having little success. Bids
of $102 were raised to $103 then $104 with little transactions occurring.
Cattle owners seem content to sit on asking prices of $105.
Should fed cattle sell every day like in times past, the
price would likely vary from day to day depending on the changes in market
moving information. The changes would be smaller than the weekly changes
that have been caused by the small pool of cash cattle that frequently sell
late on Friday or even Saturday as was the case last week. Daily trading
would be preferred by all market participants on both the buy side and the
This week's sales on the fed cattle exchange will set the tone of the
market for this week. Prices were $3-5 higher than last week with most sales
between $103-105. Cattle were once again mainly from Nebraska but several
pens in Texas and Kansas sold. The online auction will serve several
functions. It will set cash prices for some business to business
arrangements. It also will provide an open and transparent gateway to
examining, analzing and reporting the cash markets. It also will be a prime example of
how ag markets are moving to the web.
Cattle Futures. Futures were higher once again making many believe the
direction has changed. Futures trading
more in line with market fundamentals than technical indicators.
Market moves in the futures are more incremental than volatile.
are released each Thursday and will be a closely watched barometer
indicating the position of cattle feeders in the nation's feedlots. The last
released for the week of October 8th, had steer carcass weights flat at
remaining 17# under last year. Peak weights normally occur in October. The
carcass weight remains above the 5 year average and with cheap corn will
remain a thorn in the market's side contributing to extra tonnage. The
increasing heifer slaughter will positively impact tonnage.
Contracts: The deferred futures months may not yet be large
premiums but they are premium to last week's cash.
Attracting selling interest into those deferred months means convincing
sellers to part with money losing cattle at today's prices and taking a
weather risk in the meantime assuming a flat price. Basis trades
continue in Jan/Feb at $2 over the board.
The weekly breakdown of fed cattle moving to the beef processing plants is
as follows. 1) formulas 55%; 2) negotiated 20%; 3) forward contracts 25%.
Some of the formula arrangements are week to week negotiated prices and not
committed cattle to one plant.
The Cutout. Prices for beef cuts were mixed as we head towards week's
end. The slaughter number for the past two weeks has hovered
closely just above 600,000 head.
Packers and retailers have found a sweet spot in the market that is allowing both to make
generous margins handling beef.
One high end steak house owner noted the featured
specialty for the past few weeks has been a special cut T-Bone. The USDA
prime cut was priced at $115 for one serving. What the owner failed to
reveal was the cost of that portion was exactly half the price of last year
for the same cut.
The burden of a larger cow slaughter this year has added
to the supplies of ground beef and contributed to more tonnage. Breeders
will be looking at their bottom line as they make judgments regarding
culling cows this fall. Those judgments will likely slow any
additional expansion if the fed prices haven't already done that. Heifer placements are increasing in the nation's feedyards.
The role of increasing heifer placements is important in assessing the
stages of the cattle cycles.
|Choice Cutout||Choice Price Change
|Select Cutout||Select Price Change
The new week is bringing on some optimism in a space that
has been devoid of that emotion. Higher cash prices and futures are carrying
over to the replacement market. Moderated auction numbers also helped
contribute to better prices.
Quietly and with little attention has been the growing
placement percentage of heifers placed on feed and slaughter each week in
the nation's beef plants. This is evidence of the end of the expansion phase
of this cattle cycle. Breeders want less heifers held back and those
currently selected represent only replacement of culled cows not expansion
of the herd. The percent of heifers in the weekly slaughter is 27% this year
compared to 24% last year. As the percent of heifers increases, it pulls
down beef tonnage because heifers market at lighter weights.
Oklahoma City. The OKC auction was $3-5 higher as feeders digest a
bullish cattle on feed report.
Feeder futures followed higher cash prices and a higher futures board
for fed cattle. The November contract has been especially strong given the
change to a 800# base price.
Feeder Cattle Cash Index. The index is on par with cash prices as the
contract winds down to expiration.
Forward cattle contracting. Feedlots are not particularly interested in
forward contracts for spring thinking they would rather wait than forward
price. The basis levels for forward contracted feeder cattle is being
lowered by many feeding firms. Basis trades off the forward contracts are
quoted -$3 for a 800# steer delivered to the Texas Panhandle in the
Weekly Feeder Summary released on Friday of each week tracks the
national prices by region for last week.
Corn futures. Corn prices moved higher at week's end. The grain prices recently have surprised many by
advancing from close to $3 to $3.50 at a time of the year when grain
normally falls during harvest. Corn
over the December are close to par in Guymon
Oklahoma. Corn is now pricing into rations at $6.30
cwt. in the Oklahoma Panhandle compared to wheat at $6.00 cwt..
REFORMING THE CATTLE FUTURES CONTRACTS
Almost all participants in the cattle markets agree on the need to reform
the live cattle futures contract. In an attempt to sort through the issues
involved in changing the contract, we have Frequently Asked Questions posted
on the link below that are an attempt to capture many of the diverse
opinions on this reform. The Cattle Report welcomes comments from readers.
REFORMING THE FUTURES LINK
MILLENNIALS -- DEPENDING ON THE NEW GENERATION OF BEEF
A weekly slaughter of 650,000 cattle is not unusual judged
by any historical standards. The U.S. cattle herd has rapidly expanded,
reacting to severe declines in herd numbers caused by drought and low
prices, and now must live with the results of a larger national herd. We
have created this monster and now must strategically manage our way through
it understanding the complex forces at work on beef demand. The Millennials
are the new generation of consumers and beef doesn't have the same cache
with them as it did with the baby boomers. The approaches to bringing them
into desiring beef's prominence at the dinner table will require new ideas.
We currently struggle to hold a steady beef market while
slaughtering 600,000 cattle a week and the thought of 650,000 head would
send all the beef markets into a tailspin. The role of beef in the eyes of
Millennials is not the same as consumers of the past. The media has helped
brain wash our young people by scapegoating the beef industry as insensitive
to animal welfare, responsible for global warming, damaging our immune
systems with disease resistant pathogens and producing an unhealthy product.
They portray beef producers as factory farmers only caring about their
bottom line with no thought to the consumer.
These are serious charges and must be addressed in order
to restore beef's reputation in the marketplace. A response must occur on
many fronts. Not only must the response be substantiated with sound science
but it must be presented by real live human beings that come across as
honest and earnest. The restoration of beef's image is not a PR campaign. It
won't be solved with a catchy "whats for dinner?" ad on TV.
The start is with rock solid science done by top
universities detailing the importance of beef in any balanced diet.
Unfortunately, this work can't be done by Texas A&M or other ag schools
because it will be attacked as tainted with conflicts of interest. The
science needs to then be disseminated to all education institutions at every
level. It must become part of all acquired knowledge by young people working
their way through the educational systems of this country.
Next point of sale links need to be established explaining
to consumers who produces their beef, how it is produced and how
healthfulness and food safety issues are part of the production process.
This needs to be done with real people telling real stories to the consumer.
The faceless "factory farmer" has cost the industry millions of lost pounds
of beef consumption. The delivery of this information needs to incorporate
the social media and new technologies available for very little cost to the
industry. Bar codes on the packaging should allow a scan by the consumer to
pull up a web site telling the consumer all they want or need to know about
their beef. Mandatory ID of our cattle herd is a basic need and requirement
for winning back the consumer.
The check off dollars for beef promotion can not move down
the same path of 25 years ago in reaching the consumer. The plan must be
strategic and it must be now.
NOTE TO READERS
Sections of the newsletter are redesigned with hyperlinks
to the appropriate source pages. The hyperlinks are in light blue within the
FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE
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.
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
|750 # Feeder Steer||913.80||121.84
|Cost of Gain 600 pounds||396.34||0.66
|Estimated Interest(Prime + 1%)||24.83||
|Net Profit / Loss||77.69||5.76
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.
|750 # Feeder Steer OKC 150 days ago||1,110.00||148.00
|Cost of Gain 600 pounds||422.85||0.70
|Estimated Interest(Prime + 1%)||24.44||
|Current Texas Panhandle Cash||1,345.82||99.69
|Net Profit / Loss||-211.47||-15.66
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