September 1, 2014  

                    

CATTLE MARKET REPORT AND ANALYSIS

 

 

THE MARKETS

  

 

This past week brought higher cattle prices in spite of packer's reduced purchasing needs for a holiday shortened slaughter week. The indication and early signal was late Thursday when a major packer purchased cattle at $155 and then ordered them in to the plant the next morning. This news prompted sellers across all regions to hold firm to asking prices. Sales of cattle were $2-3 higher with most live sales from $155-156 and in the beef sales at $245-246. The August live cattle contract expired spot on to cash prices.

 

Packers will not be so willing to concede prices on boxes in the coming week. Three weeks of lower prices for beef cuts may provide a foundation for new retail interest knowing that smaller supplies will be available in the coming months. The post holiday period which as the weather cools tends to be a good beef eating period. Choice box prices were quoted $246 with select at $234 and the spread widened to $12.

                     

Replacement cattle have undergone two weeks of erratic price movements sparked by a sell off in feeder futures that sent the contracts down $15 cwt. but now are retracing much of that lost ground. During the course of the decline, demand remained strong as industry participants fought over dwindling supplies.

 

Theories of bunched feeder supplies in October have left many feedyards with empty pens waiting to reload this fall. If those heavier runs fail to develop, many yards will go into the winter with limited capacities. A 750# feeder steer was selling for $218 in the southern plains.

 

Sampling of yields across the nation is turning up yield estimates as the country prepares to bring in a large corn crop. September is a transition month when the new crop starts creeping into use threatening the usually high basis. In the Texas Panhandle where feedlots have been paying up to $1.50 over the futures, that number should drop in half. DDGs and other ethanol byproducts are being offered into the market at favorable pricing for cattle feeders. Corn is now pricing into rations at $8.50 in the southern plains.

 

 

 

LOOKING FOR THE COMING WALL OF CATTLE

 

In May of this year, the analysts reminded us that heavy placements the first few months of 2014 would be coming to market in June. Most forecasts called for the market to fall into the $130s for fed cattle. June arrived and the additional numbers never materialized but the forecasters moved the arrival date to July then August and now September.

 

There is some evidence of a lack of currentness in the pool of available fed cattle for sale. Carcass weights have been steadily moving higher than prior year since early July. They currently are 10-15# above last year. The additional carcass weight adds about 5% more beef to the tonnage than last year but still leaves overall tonnage well short of last year.

 

Some of the marketing of heavier cattle is by choice and not because cattle are backing up in the feedyards. Feeders are hesitant to sell the current cattle and replace with high priced feeders requiring at least $165 for a breakeven. On an absolute basis, many pens are being sold each week with no replacement cattle put back.

 

This past week signaled the thought that there may not be a wall of cattle in September or anytime soon for that matter. Talk is cheap and packer buyers who have been carrying the message of larger supplies in September, may find sellers unimpressed. Our recent cattle on feed report featured the last of a long string of reduced placements that should keep cattle on feed at historically small numbers into the foreseeable future.

 

The fuel for this year's upsurge in fed prices is the status of the nation's breeding herd. The cow calf operators are not selling cows. The upcoming wall of cattle won't be in the feedlots for a while but as breeders place cows in every nook and cranny across the nation, there will be more stockers and feeders before you know it. The breeding herd has ramped up like no other cycle in the history of the business. Next year will feature the beginning of increasing supplies of stocker and feeder cattle and when the numbers start they will be large.

 

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 Steer1,642.35218.98
Cost of Gain 600 pounds493.720.82
Estimated Interest(Prime + 1%)38.73 
Current Breakeven2,169.93160.74
Current Futures2,089.80154.80
Net Profit / Loss-80.13-5.94

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 pounds550.160.92
Estimated Interest(Prime + 1%)27.73 
Resulting Breakeven1,890.39140.03
Current Texas Panhandle Cash2,052.00152.00
Net Profit / Loss161.6111.97

 

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