PLAINS MARKET TALK
Cash Cattle. A pall remains over the cash markets aggravated by talk of
too much meat from all the meats, weak sellers, and fading box prices. Show
lists are shortened and slaughter needs will be less than the past two weeks
due to the Labor day holiday. Selling continued in the north this week with
sales in Nebraska at $110-111. Weak sellers, reacting to a large discount in
the futures, allowed packers to take full advantage of the situation.
Dressed bids were at $177.
Much of the talk in the trade center around how low prices can go with some
suggesting prices might be headed under a dollar. Historic prices of a few
years back offered similar volumes of beef into the market at prices much
higher than today. However, the markets of three years ago failed to include
the excessive supplies of chicken and pork.
Cattle Futures. The futures continued the dramatic decline with little
inclination of finding a bottom. August will expire tomorrow and the cash and futures
prices are on a path to converge with the decline in cash prices closing the
gap. Discounted futures are pulling the cattle to market and the
October futures soon to be the spot month show no signs of changing the
market direction. With few longs willing to enter the market, there is
mostly sellers of futures wanting to get on the bandwagon.
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 August 13th, had carcass weights up only 1# at 887#
remaining 13# below last year. Seasonally, carcass weights should increase until next winter. The important references will be
comparing carcass weights this year with last and determining how those
weights impact overall tonnage when compared to prior year.
Contracts: Once again steep discounts in the deferred contracts
will limit forward contracts.
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. Last week's slaughter was revised to 605,000 or the largest
slaughter week of the year. Beef processors will be operating the plants to utilize the
facilities to maximum value with the largest margins of the year in the bag.
Labor day holiday shortened week is expected to harvest 50,000 more cattle
than last year. Retailers joined the benefits of lower prices and were
purchasing beef for current and deferred deliveries. It is difficult to
assess how much of the decline in box prices will be passed along to
consumers as both the processing and retailing sectors enjoy generous
The cow slaughter has remained consistently above prior
year. Heifer placements are increasing in the nation's feedyards and all
indications are that the ramp up in the nation's cow herd is concluding. The
larger cow slaughter has also resulted in an increasingly large supply of
frozen beef in storage.
|Choice Cutout||Choice Price Change
|Select Cutout||Select Price Change
Buyers are ready for another major reset of replacement
cost as a falling fed market is causing major re-evaluations of placement
strategies across the plains. September is the beginning of the fall run of
stocker and feeder cattle. Live cattle futures are sending the message that
fed prices are not finished falling and establishing a sustainable price
level for fed cattle might require moving prices towards $100 -- a price not
seen for five years.
Many feedlots are choosing to wait out purchases for the
October buying period with expectations of another large drop in feeder
prices occurring between now and then. If fed prices are destined for a
dollar then feeder cattle are going to fall another $20 cwt.. is the thought
of many buyers. Sellers who have passed recent bids can only reprice the
cattle and suffer the declines.
Western ranchers are finding some bad news on marketing
plans for this year's calf prices. Heath difficulties off many of the
isolated and remote ranching locations in the west have introduced serious
and severe health problems for buyers introducing those naive animals into
an environment full of pathogens. This is encouraging a "common sense"
practice of weaning calves on site at the location where breeding occurs.
Ranchers engaging in this practice gain the advantage of capturing value
added premiums for weaned calves and enjoying the luxury of the lowest risk
and cost location for weaning to occur.
Oklahoma City. For the second week in a row, stocker and feeder cattle
took a hit in auction news. Many buyers complained the drop was not enough.
Prices were $5-10 lower with late sales at the lower end of the range.
Feeder futures are falling fast and expectations for fall prices include
little optimism and broad concern on price stability. Seasonally and
historically feeder prices bottom in October.
This year the base weight on the contract changes in November giving a
relationship between Oct/Nov a unusual pricing relationship with November a
discount instead of premium.
Feeder Cattle Cash Index. The index is in decline mirroring the cash
markets it is indexing.
Forward cattle contracting. The basis for forward contracted feeder cattle
is being lowered by many feeding firms. Basis trades off
the forward contracts are quoted from -$1 to -$2 for a 775# steer delivered to
the Texas Panhandle. Many feedyards are filling up and large amounts of
unsold cattle remain in grazing locations that have enjoyed good rains and
are finishing the season with green grass growing.
Weekly Feeder Summary released on Friday of each week tracks the
national prices by region for last week.
Corn futures. A large fall out in the grain markets continued in
early week trading. Contracts for both corn and wheat were setting new lows. While many
feeding operations have switched to wheat, the large carry in the wheat
contract will cause many to switch back with new crop corn. Harvest is
beginning on the southern plains. Grain elevators continue to carry large
stocks of last year's corn along with an abundant wheat crop. Corn
over the December are around +20 cents in Guymon
Oklahoma. Corn is now pricing into rations at $5.80
cwt. in the Oklahoma Panhandle compared to wheat at $5.60 cwt..
Department of Amplification
A friend of ours called his local order buyer bright and early this week and
conveyed the following message:
"i wanted to call you before you called me and tell you i won't be wanting
or buying any cattle this week. Furthermore, I won't be ever buying any more
cattle so please don't call and pester me. If I should call you in a few
days and order some cattle, don't believe me and if you ship them, I won't
pay for them. I am recording this message and will be archiving it for
MIND OVER MATTER – EATING HEALTHY
We all want to eat healthy. Certainly, there are some
foods that, in excess, are bad for your health and obesity is a negative
judged by any standards. The government wants to start making food companies
that advertise their products as healthy – prove it. This is the point when
developing standards gets problematic and putting judgment calls on various
foodstuff into a politically charged environment can result in confusion and
We all remember being told by the government to drop
butter and instead substitute margarine. Apple producers remember the
government report on Alar that ruined the apple market for years. Howard
Lyman on the Oprah show warned consumers that mad cow in our beef supplies
would kill hundreds of thousands of people by the year 2000. This does not
negate the importance of food safety and our country provides some of the
safest food in the world.
Now some researchers have helped the process along by
studying how perceptions of foodstuffs affect their taste and desirability
in the mind of the consumer. This is a more useful area of inquiry than
judging the healthfulness of foodstuff by government bureaucrats. In a
recent study, researchers wanted to find out whether people’s beliefs about
how cattle were raised would influence their objective judgment on how the
meat taste. The researchers presented 146 people with two identical beef
samples. Each sample came with a label reflecting sourcing information
designating each portion either from: 1) a factory farm; or, 2) A humanely
raised farm [code for family farm]. No one was aware they were all eating
the same beef regardless of the label. Overwhelmingly, the people chose as
superior beef the humanely raised beef and were oddly specific about why it
was superior. The factory farmed beef “had a bad smell” or “looked less
appetizing” and of course, tasted less pleasant. The factory raised beef
tasted greasy to some. Some even left half of the factory beef on the plate
while eating all of the humanely raised portion.
People want the food they eat to reflect their personal
values beyond serving their physical needs. The study reflects the serious
problem in the beef industry that few consumers understand the pejorative
use of a meaningless term “factory” or the equally meaningless term “family
farmed”. The study emphasizes the importance of a beef campaign that tells
beef’s story in a manner that makes the product attractive to the consumer
because the consumers understand more about how and who produced the beef.
The media is skilled at portraying beef producers as factory farmers when
the urban newspapers creating the copy have little to no knowledge about
best management practices in rural America. This puts the burden of
introducing to consumers the hard working individuals who care about the
animals they raise and spent countless hours seeing that they receive the
highest level of care and the beef processors who spend millions of dollars
a year to assure a healthful product.
Telling the story of beef producers is telling multiple
stories -- one at a time. The notion that beef producers are compromising
quality or health standards in beef production is rubbish and needs to be
clarified at the retail counter. This is not only the job of the retailer
but also the packer and those operating in the live animal sector.
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||1,095.83||146.11
|Cost of Gain 600 pounds||433.60||0.72
|Estimated Interest(Prime + 1%)||29.27||
|Net Profit / Loss||-76.72||-5.68
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||1,200.00||160.00
|Cost of Gain 600 pounds||465.60||0.78
|Estimated Interest(Prime + 1%)||26.50||
|Current Texas Panhandle Cash||1,551.96||114.96
|Net Profit / Loss||-140.14||-10.38
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