PLAINS MARKET TALK
Cash Cattle. It is hard for some to view this past week's market as
positive but the tone at week's end was just so. The notion that prices fell
further than necessary driven by a futures market that at times seemed
bottomless until the late week recovery. Cash cattle lost $7 cwt. for the week with most cattle selling at
$125 however packers picked off a few cattle in the north late Friday at
$126 and raised dressed bids to $127 live and $205 dressed in the north late
Friday. This is some indication of confidence in the market.
Sales earlier last week in the north were $196 dressed. On Thursday packers
raised bids to $198 where they were able to buy some volume. To jump the
dressed price to $205 late Friday is some evidence of packer inventories and
bodes well for this week's cash market.
The cash market has been moving up and down in large price blocks. Last week
it was down $7, previous weeks in the recent past witnessed rises of $5-6 on
the upside. These weekly moves in $5 ranges are large and volatile moves
where $50-75/head on cattle would be regarded by all beef producers as big
money. Most would be content with a $50 profit for a 5 or 6 month feeding
period. The most interesting aspect of the large weekly price moves is the
fact that almost all week's this year have posted a cash price for the week
of between $125-$135 with only a couple of small exceptions.
Breakevens are working lower but unfortunately, so have fed prices. Sales
above $130 live were beginning to show a profit for the first time this year
when prices dropped $7 last week making the appearance of profits develop a
mirage like effect. From November to December of last year, feeder prices
fell from $190 to $150 -- a big drop. Should fed prices recover to $130,
black ink may return to some closeouts.
Fedcattleexchange.com The new initiative to auction
fed cattle on the internet got off to a rocky start this past week. The auction
was handicapped by the early week rout in futures for a start. Combine that
problem, with technical glitches, a lack of trade standards, no settlement
and clearing function and the take away is the site needs more work. Bidding
with an auction format should develop a competitive climate among buyers but
instead only one or two advances for each lot were recorded. Prices ranged
from $123-125.50 across the spectrum of cattle feeding regions. Also the
differentiation in price failed to develop. The choice/select spread is
close to $20 cwt. yet cattle described as higher grading cattle failed to
attract premium bids.
Cattle Futures. Futures opened this week, a day late because of the
holiday, but reflected the late Friday trade at a $131 live equivalent [$205
dressed]. If the cash prices move back to $130 and higher, the June live
cattle contract has a long ways to go to make up the gap.
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 May 14th reflected carcass weights steady with last
week but 4# under last year. Seasonally, carcass weights should begin to rise
as spring and summer performance improves. 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: Packers now are purchasing cattle for the delivery month
and will continue downward pressures hoping to purchase live inventory
cheaper and maintain generous margins. Buying forward has been a useful tool
for lowing cash prices for spot delivery. Packers and retailers have
benefited for forward purchases and now will turn their attention to
lowering cash prices to the futures spot price. The question will be whether
current fed supplies will allow them to buy cattle lower.
The weekly breakdown of fed cattle moving to the beef processing plants is
as follows. 1) formulas 55%; 2) negotiated 25%; 3) forward contracts 20%.
The Cutout. Retailers are expected to re-engage next week as buying for
the father's day weekend is upcoming. Margins remain good at the processing
and retailing level. This past week's slaughter remained steady at 587,000
cattle and will be shortened in the coming week. All participants in the
beef trade will watch the clearance in stores this weekend. Volumes of sales
of boxes increased this past week although prices were lower.
The weekly choice/select spread widens in the spring and
normally peaks around this time of the year. The spread this year has jumped
up above last year and the five year average. This is some evidence of
pulling forward of cattle and the current state of the fed cattle supplies.
It also reflects another trend in the beef business. As retailers have
switched to carrying more choice product as a result of better grading, they
need to pay whatever premiums are necessary to continue a choice only
program. When grading declines, competition increases and pushes choice
|Choice Cutout||Choice Price Change
|Select Cutout||Select Price Change
Oklahoma City. Prices as expected were $5-10 cwt. lower on all classes
of replacement cattle. Feeder steers weighing 7-800# sold from the mid $130s
to the low $140s. Feedlots are realizing the entire pricing scheme of
replacement cattle needs to ratchet down. The full brunt of the price
decline will eventually fall on the breeder as all segments of the industry
in the live animal sector struggle for profitable operations.
Holding cattle for higher prices has been a loser. Cattle
moved off pasture this spring have been heavier because winter performance
was good but also because they have stayed longer on pasture. Many operators
decided to hold some cattle past May in an effort to find a better period of
time frame with smaller offerings. June may provide success for holders of
replacement cattle as price move off the spring lows.
Feeder futures found a bottom and continued higher although the pace
Feeder Cattle Cash Index. The index will track for several months the
cash market but will be a long distance from settlement in late August.
Weekly Feeder Summary released on Friday of each week tracks the
national prices by region for last week.
Corn futures. Traders are sensing troubles with the South American crop
are those troubles are translating into a speculative push of all grains
higher. Joining in that momentum is the notion that commodities in general
are due a rally after getting beat up for the past year. Feedlots switching
to wheat will pressure the corn basis and leave many bushels of corn to be
sold at unusually narrow basises in the summer. Wheat is trading into many
feedyards at .40-.50 under the July contract. The corn basis is currently around
15 over the
July contract in Guymon
Oklahoma down from .60 over last year. Corn is now pricing into rations at $7.30
cwt. in the Oklahoma Panhandle compared to wheat at $7.25 cwt..
a new tool for cash reporting for the cattle industry
A Blockchain is a public ledger of
all transactions that have ever been executed in a particular market. It is
constantly growing as ‘completed’ blocks are added to it with a new set of
recordings. The blocks are added to the Blockchain in a linear,
chronological order. Each node (computer connected to the designated
network) is required to be approved by the governing datastore as an
approved client. The approved client performs the task of validating and
relaying transactions to the parent datastore and in return gets a copy of
the Blockchain, which gets downloaded automatically upon joining the
marketplace network. The Blockchain has complete information about the IP
addresses [internet addresses, geographic region, etc.) of the clients and
their balances right from the genesis block to the most recently completed
Blockchains have been popularized
for their use in Bitcoins – an attempt to create a universal global
currency. The Blockchain is seen as the main technological innovation of
Bitcoin, since it stands as proof of all the transactions on the network. A
block is the ‘current’ part of a Blockchain which records some or all of the
recent transactions, and once completed goes into the Blockchain as
permanent database. Each time a block gets completed, a new block is
generated. There is a countless number of such blocks in the Blockchain. The
term was created when the Blockchains are linked to each other (like a
chain) in proper linear, chronological order with every block containing a
hash of the previous block.
To use conventional banking as an
analogy, the Blockchain is like a full history of banking transactions.
Bitcoin transactions are entered chronologically in a blockchain just the
way bank transactions are. Blocks, meanwhile, are like individual bank
statements. The beauty of the Blockchain system is its ability to adapt to
any market. No market would benefit more than the cattle markets where
little innovation has developed over the past 50 years and the markets are
crying out for more price transparency when none exists.
The starting point for cattle
price reports would be feedlots. The data base will reside with a trusted
third party or cattle association and the member codes would be held offsite
and be protected against accidental exposure. All firms agreeing to
participate and submitting blocks of price transactions would receive access
to the composite Blockchain providing complete and real time data price
points. No individual client would be able to view any other clients
information but all could view the composite.
Depending on the level of
participation, the country would be divided into reporting regions in a
manner protecting the proprietary information provided by the clients.
Cattle descriptions would be divided into 1) beef breeds, 2) Dairy breeds,
3) Mexicans. Calves would be divided into weaned and unweaned. All Value
Added cattle or premium programs, such as NO antibiotics or hormones would
be segregated. Reporting would be for stocker cattle, feeder cattle and fed
cattle but could include markets like boxed beef if processors were
interested in using the Blockchain tool. Delivery periods would be noted for
each transaction. Each transaction would be reported as a flat price or a
basis price with the associated futures month or delivery month if it were a
Market clients would be able to
view their transactions, whether purchases or sales, [their block] and
compare to the aggregate Blockchain. Indexes could be created and could
serve as benchmarking against futures settlements or cash transactions.
There would be little reason for any industry firms not to participate and
the cost would be very small when compared to the information provided. A
governing board elected by the clients would establish the rules and
regulations governing all reporting. The governing board would need to have
authority for a third party audit of outliers or blocks that failed to fall
within normal ranges. Audits would be done by independent third parties
selected by the governing board. There are too many impediments to bring
about a change in mandatory price reporting. The industry would be better
served to create an industry model requiring no authority to operate other
than the shared mission of the clients.
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||1,095.68||146.09
|Cost of Gain 600 pounds||505.59||0.84
|Estimated Interest(Prime + 1%)||30.15||
|Net Profit / Loss||-48.39||-3.58
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||523.91||0.87
|Estimated Interest(Prime + 1%)||25.37||
|Current Texas Panhandle Cash||1,776.33||131.58
|Net Profit / Loss||117.05||8.67
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