April 16, 2014  

                    

CATTLE MARKET REPORT AND ANALYSIS

 

 

 

THE MARKETS

  

 

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 and money.

 

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 however.

 

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 live contract.

 

 

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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 Steer1,344.60179.28
Cost of Gain 500 pounds461.270.92
Estimated Interest(Prime + 1%)32.27 
Current Breakeven1,833.59146.69
Current Futures1,722.25137.78
Net Profit / Loss-111.34-8.91

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 ago1,172.40156.32
Cost of Gain 500 pounds456.410.91
Estimated Interest(Prime + 1%)24.46 
Resulting Breakeven1,653.27132.26
Current Texas Panhandle Cash1,850.00148.00
Net Profit / Loss196.7315.74

 

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