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 into October.

 

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.

 

FEEDER MATRIX

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 Steer1,728.75230.50
Cost of Gain 600 pounds455.200.76
Estimated Interest(Prime + 1%)40.13 
Current Breakeven2,219.59164.41
Current Futures2,139.48158.48
Net Profit / Loss-80.11-5.93

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 ago1,312.50175.00
Cost of Gain 600 pounds530.910.88
Estimated Interest(Prime + 1%)27.56 
Resulting Breakeven1,870.97138.59
Current Texas Panhandle Cash2,173.50161.00
Net Profit / Loss302.5322.41

 

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