June 28, 2016 



BOC Loan






Cash Cattle. Asking prices moved higher and show lists moved lower.  The ag markets began uncoupling from the EU news and will develop their own track as the 4th holiday approaches. Packers will be purchasing for one less day next week. Most asking prices moved to $120 and many sense a bottoming to the summer market. Additionally a moderation of the summer heat also appears across much of the nation.


Carcass weights are some good indications of the currentness of the feedlot marketings of fed cattle but taken alone, they require additional analysis. Herd rebuilding requires heifers and typically in herd rebuilding mode, more steers are placed on feed and when all carcass weights are calculated the fact of inclusion of more steers will naturally raise carcass weights. Because of recent price declines, one might expect the beginning of a period when more normalized heifer placements will return and as the percent of heifers in the slaughter moves higher, it will lower carcass weights. This might impact carcass weights later this year or early 2017.


Cattle Futures. Futures paid more attention to market fundamentals and less to the cross currency exchange rates. The higher prices were more a continuation of a rally that ended last Thursday than the setback from Friday. The spot June contract will expire this week. Cash and futures converged on June but remain spread by several dollars on the August contract soon to become the spot month. Several technical indicators turned bullish with the August holding a technical bullish signal by closing above $112. 


Carcass weights are released each Thursday and will be a closely watched barometer indicating the position of cattle feeders in the nation's feedlots. The last report released for the week of June 11th had carcass weights up near flat on steers leaving weights just under last year by 5#. Seasonally, carcass weights should begin to rise from this point forward. 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.


Forward Cattle Contracts: A look at forward sales for July through year's end reflects increases in the numbers of forward contracted cattle by the beef plants. Many or most of these contracts are accompanied by short positions in the market and some are matched with formula sales to retailers. When the June contract expires this week, packers will be inclined to buy out two or three weeks hoping to depress the spot market by offering good basises to the feedlots hedged in August. Most of the forward sales for October are trading at Par to the board price.


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. The choice cuts fell in early week trading. The choice/select spread that only recently topped at $25 has now narrowed. Margins at the beef plants and retail stores remain generous and this type operating environment will continue to influence larger slaughter levels. Last week's slaughter volume was revised to 611,000 making it the largest in 2 years.



Choice CutoutChoice Price Change
223.48Down $2.94
Select CutoutSelect Price Change
202.75Down $1.51







Oklahoma City. Oklahoma City prices were $5 higher as last week's rally in futures and decline in grain prices translates into new demand for replacement cattle. 


Calf prices are not moving higher at the same pace as yearlings. New crop calves and hot weather are discouraging risk taking by stocker operators. All classes of calves are quoted $10 lower. Range conditions are mixed with some areas of the southwest dry and fire hazards common.


Stocker operators are watching the deferred feeder futures and are moving some marketing periods forward rather than wait and face a lower price. Weights this spring have been heavy off winter grazing fields. Pasture conditions are generally good across the plains although hot and windy weather dries many pastures quickly.



Feeder futures followed the live cattle contract higher. Volumes in the feeder contract are extremely light.           


Feeder Cattle Cash Index. The index will track cash prices leading up to the expiration at the end of summer of the August contract. Currently the basis is trading very close par with index and futures at the same price level. Basis trades off the August contract vary for July from -$1 to +1 for a 775# steer.        


The National Weekly Feeder Summary released on Friday of each week tracks the national prices by region for last week.   


Corn futures. Corn jumped 10 cents overnight and the rise will influence cattle prices. Weather and export news which means the value of the dollar often dominates price moves in the summer.


Wheat harvest is underway in the southern plains and the crop is large. 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 $7.00 cwt. in the Oklahoma Panhandle compared to wheat at $6.75 cwt..




Few ag analysts concerned themselves with the vote in England to Remain or Leave the EU. We export very little beef to the EU and the little beef we do export must conform to strict guidelines of no hormones. Trade with the EU in general is tedious with lots of bureaucratic red tape associated with trading protocols. Our stock market had been on the rise all week as odds makers and pollsters felt confident the UK would stay in the EU. London bookmakers were taking bets for Remain as a 3-1 favorite.


When the vote was tallied and the Leave vote prevailed, more thoughtful consideration of the ramifications was brought to the forefront. Many voted to leave as a protest. Those voters are sick, like many in this country, of the arrogance and incompetence of the leadership of the government. Now the vote is in, people are realizing that no matter your business or your country, the vote will have far reaching consequences. It also could preview additional fall out of other withdrawals from the EU or even withdrawals from Great Britain by Scotland and Northern Ireland. Immigration and the lack of monetary control over member states are at the core of trouble in the EU.


For those of us in the beef industry, the immediate impact was a very sharp rise in the value of the dollar. Our exports have been rising over prior year primarily driven by the decline in the value of the dollar. This rise, the largest in many months, will threaten a continuation of the rise in our exports. Exports of beef from this country, while only 15% of the market, often make the difference in the balance between production and demand.


Brexit also presaged a lowering of our domestic growth rate because of trade disruptions and uncertainty regarding future exports of all goods from this country. Less growth in this country is a factor in providing new jobs and job growth accompanies good demand for beef.


On the positive side, beef trade with Great Britain might improve as new standards are adopted for exporting beef to England. The restrictive measures of the EU might be discarded in new trade agreements with the Brits.


While the fall out in cattle futures last week because of Brexit was probably overdone, uncertainty and confusion are never good for markets. Many analysts felt last week was setting summer lows for fed cattle prices and so now throwing a wild card into that matrix, leaves renewed attention on the coming few weeks for all markets.




Sections of the newsletter are redesigned with hyperlinks to the appropriate source pages. The hyperlinks are in light blue within the report.










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. 




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.

750 # Feeder Steer1,055.48140.73
Cost of Gain 600 pounds486.840.81
Estimated Interest(Prime + 1%)29.04 
Current Breakeven1,565.36115.95
Current Futures1,536.03113.78
Net Profit / Loss-29.33-2.17


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 ago1,110.00148.00
Cost of Gain 600 pounds452.650.75
Estimated Interest(Prime + 1%)24.71 
Resulting Breakeven1,587.36117.58
Current Texas Panhandle Cash1,566.68116.05
Net Profit / Loss-20.69-1.53

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