PLAINS MARKET TALK
CATTLE ON FEED
U.S. CATTLE ON FEED ESTIMATES
IN YARDS WITH MORE THAN 1,000 CAPACITY
ACTUAL OF ESTIMATES OF ESTIMATES
CATTLE ON FEED September 101 101.2 100.3-101.9
PLACED DURING August 115 113.1 108.6-118.0
MARKETED DURING August 118 117.5 112.3-118.1
The monthly COF report contained few surprises.
Marketings were slight above pre-release guesses and placements were also
slightly higher than the average of guesses. Last year was the lightest on
record for placements and the placements reported by USDA fell far below a
five year average. The marketing number buttresses the notion that front end
supplies are current.
Cash Cattle. Following a wild day in futures trading, prices recovered
to close on the positive side in the spot contract. Early sellers in the
north suffered at the mercy of the packers and crashing futures cratering to
lower bids with sales at $105-7 while dressed prices were from $166-168 --
three lower than last week. In the south where packers lowered bids to $107
and no takers, bids were back to $108 after the rally in futures but still
Cattle Futures. Futures prices traded a few points from limit down
before staging a late session rally to close higher in the October contract.
on feed report will offer some insights into placements and marketing
numbers -- both are expected to be much larger but this year include two
more days than last year and last year's placements in August were all all
time low number.
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 September 10th, had steer carcass weights up 5# at
remaining well below last year. This is the first reported week with steer
carcasses over 900#. 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. Adding into the
total tonnage picture is the percentage of heifers in the slaughter mix.
Heifer slaughter has increased significantly in the past few weeks.
Contracts: The deferred futures months may not yet be large
premiums but they are narrowing the recent large gap between cash and
futures. Premium based futures are normal for the winter months because they
represent a weather risk to producers. There will be little interest on the
part of sellers to part with forward cattle sales at discounts to the
The weekly breakdown of fed cattle moving to the beef processing plants is
as follows. 1) formulas 55%; 2) negotiated 20%; 3) forward contracts 25%.
Some of the formula arrangements are week to week negotiated prices and not
committed cattle to one plant.
The Cutout. Box prices are moving higher with rumors that this week's
slaughter number will decline as margins are squeezed. Last week's slaughter level at 604,000 will
keep plenty of beef available for the market to absorb. Seasonal improvement in beef
demand is normal for this time of the year.
Brazilian beef plants were approved for shipment of fresh
beef to the United States announced by USDA on August 1. Those shipments
will begin this weekend. There is not expected to be a sea change in
international movements of beef. We already receive beef from some South
American countries and much of Brazil's beef moves to the EU and Asia.
Chinese Premier Li said China will
soon resume U.S. beef imports. China is a large market for U.S. beef and while
some beef has been moving through Hong Kong, this news may facilitate
increasing supplies by year end. Questions remain about the rules and
regulation regarding imports and how hormones, ractopamine and individual
animal identification will play into this announcement. This will reverse a
ban set in place following a mad cow discovered in this country.
The lengthy and continuing large cow slaughter will factor
into the overall cow numbers in the country and certainly will slow any
additional expansion if the fed prices haven't already done that. Heifer placements are increasing in the nation's feedyards.
Few operators are seeing a two way option for heifers -- to sell as feeders
|Choice Cutout||Choice Price Change
|Select Cutout||Select Price Change
Observers of the replacement market can witness two
different markets. In the north demand for feeder cattle from farmer feeders
who are willing to invest this year's corn crop in cattle instead of booking
a cash sale to the grain companies, has created a premium priced market for
sellers in those areas. Yearling steers weighing 775# brought $155 in St.
Joe at auction. These cattle will have freight and buying commissions to add
to the price before finding a home in the north. At the same time in the
south, yearlings of similar weight were bringing $135 in Texas. Qualities
may not completely match but the price variances are wide.
September placements to date have not been large. Stocker
operators are not anxious to cash in money losing grazing cattle and forage
is good and cattle are gaining and expected to continue until frost. There is little enthusiasm for bidding up prices for
feeder cattle when all evidence points to a glut coming in October. Yearling
cattle are in good supply and feedlots are being selective in bids with 800#
steers selling in the low $130s.
Stocker operators are more interested in
weaned calves but dealers are more interested in selling unweaned calves.
There is an unusually large spread between weaned and unweaned calves and
many western ranchers are finding extra value by weaning the calves on site.
Spreads in weaned vs. unweaned cattle are large. The video auction reported
some nice quality 450# weaned steers at $175. This would compare to unweaned
high risk sale barn cattle that could be purchased for $145 delivered to the
Oklahoma City. The OKC auction was $2-5 higher of most replacement
classes when compared to last week. Heavier cattle offered the best interest
as some see a quick finish as a short term play if the fed prices continue
Feeder futures showed the volatility that is becoming common in the
contract. The October contract showed a $5 trading range with 300 point
losses much of the day recovering to only show a modest loss for the day.
Lower cash prices for fed cattle has discouraged interest in feeder cattle.
Feeder Cattle Cash Index. The index is in the final stages of
convergence with cash prices as the September contract winds down.
Forward cattle contracting. The basis for forward contracted feeder cattle
is being lowered by many feeding firms. Basis trades off
the forward contracts are quoted -$2 for a 775# steer delivered to
the Texas Panhandle. Many feedyards are filling up and large amounts of
unsold cattle remain in grazing locations that have enjoyed good rains and
are finishing the season with green grass growing.
Weekly Feeder Summary released on Friday of each week tracks the
national prices by region for last week.
Corn futures. Corn prices are moving lower as harvest progresses in
most regions. Grain elevators are pushing grain out the
door preparing for this year's corn crop. Corn
over the December are close to par in Guymon
Oklahoma. Corn is now pricing into rations at $6.00
cwt. in the Oklahoma Panhandle compared to wheat at $5.80 cwt..
REFORMING THE CATTLE FUTURES CONTRACTS
Almost all participants in the cattle markets agree on the need to reform
the live cattle futures contract. In an attempt to sort through the issues
involved in changing the contract, we have Frequently Asked Questions posted
on the link below that are an attempt to capture many of the diverse
opinions on this reform. The Cattle Report welcomes comments from readers.
REFORMING THE FUTURES LINK
CALLING FOR A MARKET BOTTOM
It is easy for many to look at this summer's price graph
for fed cattle prices and draw the conclusion that this past week represents
a market bottom. The cash prices bounced off a 5 year low and rallied $5
this past week to close mostly at $110. Of course, we also remember the many
false alarms of a market bottom that have been called by forecasters and
market participants for the past two and a half months. Those predictions
proved to be false bottoms. Anyone stating with certainty that this one is
for real might be overreaching. There is no certainty in these markets and
only those who recognize this simple fact can deal with the volatility we
face daily in the price discovery process.
The negative basis of futures to cash prices has narrowed.
The many weeks of a $10 negative basis has been replaced with a current
-$3 basis. The deferred contracts through year end and the early months of
2017 are flat with spot month October. As we found this week, the rush to
sell was abated at the -$3 level and if that level is sustained for the next
few weeks, the market may have more gains in front of us.
Carcass weights are reflecting a fairly current pool of
fed offerings. Steer weights for the last report were 16# under prior year.
The pulling forward of the past couple of months has diminished the carry
over from month to month and if you eliminate the panic selling caused by
deep discounts in the futures then a more normalized marketing pattern may
leave the cattle feeders with a stronger bargaining position moving forward.
Futures traders are not convinced the market is headed up
and the spot October contract remains $3 under the cash prices. The normal
premiums seasonally expected in the deferred months are absent. Heavy meat
supplies will keep the consumer with lots of options and lots of price
competition among the meats. Placements of cattle on feed continue to top
prior years and the feedlot occupancy levels remain up from the past couple
Into the equation of prices will always be processing and
retail margins. Packers lost ground this week as fed prices jumped and box
prices fell. As processing margins are squeezed, you can expect the packers
to trim the kill. Paring back the slaughter number will build up supplies in
the feedlots. Smaller slaughter numbers will allow packers to negotiate
higher box prices from retailers but higher prices on the beef cuts will cut
into retail margins causing less beef features.
The marketplace is attempting to discover a price level
appropriate for the current expanded beef herd. The challenge is to find a
price level that will allow all segments of the industry to margin a profit.
This does not and will not occur at the same time but over a period of ups
and downs, the marketplace must find a price level across sector segments
that satisfies an economic model of profitability.
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||1,025.48||136.73
|Cost of Gain 600 pounds||441.34||0.74
|Estimated Interest(Prime + 1%)||27.83||
|Net Profit / Loss||-49.70||-3.68
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||1,200.00||160.00
|Cost of Gain 600 pounds||451.11||0.75
|Estimated Interest(Prime + 1%)||26.36||
|Current Texas Panhandle Cash||1,483.79||109.91
|Net Profit / Loss||-193.69||-14.35
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