April 16, 2014
CATTLE MARKET REPORT AND ANALYSIS
Short bought packers started nudging around in early week
trading. A few cattle traded in Nebraska at $242 in the beef or $1-2 higher
than last week. Asking prices in the north remain at $243 and $7 over the
April board. In the south most cattle are priced at $5 over the April board. The threads in the current market for fed cattle were
tenuous and complex. Packers are threatening to trim the kill but want to be
ready to respond with product if and when demand returns to the marketplace. A late Easter has slowed some beef features and
the hang over from a cold and wet winter in the northeast, combined with skyhigh beef prices,
have put a damper on demand.
Interest in beef cuts seems to be improving judging from
both volumes in the spot market and price improvements.
Retailers will be purchasing for a post Easter marketing period and many are
thinking they want protection from a post Easter rise in prices and are
booking some beef now. Packer inventories are thin and retailers will find
tougher trading from packers who have struggled with margins in the beef
plants. Box prices were quoted modestly higher at $223 for choice and select at $213. The choice/select spread is $10.
It is difficult to see replacement cattle work any higher. Receipts at major auction barns across the country were
falling in an indication of shorter supplies to come. In California
and Arizona some feedlots were repositioning light dairy calves to other
regions of the country as the closing date nears for National Beef's Brawley
plant. It is unclear whether these placements will be counted twice in USDA
placement numbers. A 750# steer in the south was
selling for $178.
Corn moved higher in sympathy with wheat and
potential freeze damage in the southern plains. The spot May contract moved
above $5. Exports of corn has been brisk this year and is pulling down stocks,
but world production is increasing.
The basis is 65 cents
over March corn for Guymon
Oklahoma. Corn is pricing into most rations at $10.25
cwt. in the southern plains.
TAKING THE MARKETS PRIVATE
The public cash markets in fed cattle are reaching the
final stages of privatization. The were no public markets in fed cattle this
past week in Texas or Kansas even though almost 200,000 cattle traded
between feedlots and packers under some type of arrangement. Formula cattle,
once a popular vehicle for both buyers and sellers, are also on the wane as
public indexes for benchmarking dry up.
Many participants in these markets want to claim the
market is broken but far from it. The market is doing fine. There are
probably more ways to sell your cattle today than ever, but they will not be
reported or at least in a form that is understandable to the marketplace.
There is no inherent right to know the price paid in
private transactions. Some people think there is. There is only a law
created years ago and unnecessary today called mandatory price reporting.
Buyers and sellers have been able to skirt that law and obscure the
transactions to the point that it is meaningless today and a waste of time
Reformers are worried about price discovery. Price
discovery also is alive and well. Sellers are finding offers and
consummating trades every day. For anyone doubting ability to discover
price, run your own dutch auction whereby you post 1000 head for sale, allow
buyers to inspect the cattle, start the asking price at $8 premium to April
futures, drop the price .50 cwt. every 15 seconds until someone accepts your
offer, and you will discover the market. The sale won't be reported
The loss of public markets does create some
misinformation. Bragging rights are circulated in the rumor mill. Both
buyers and sellers put out their own spin on the prices paid and received
and there is no way to prove or disprove what amounts to gossip.
The marketplace has changed for a reason. More than three
fourths of all cattle traded are in carcass form. Live selling is no longer
useful. Futures contracts will be the tool of choice for pricing in the
future. Basis trades have worked in the grain trade for years. Basis trades
are working fine in the beef business today. The industry needs to support a
move to change the cattle contracts to a YG 3 choice carcass instead of a
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.
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.
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