September 2, 2015  







Cattle futures jumped back on the roller coaster yesterday joining stocks and other commodities in a broad sell off. The news again was centered around projections of a Chinese slowdown. The decline in the cattle futures was aided by weakness in the box prices and weaker live and dressed sales of cattle in Iowa. Bids of $144 in the south were passed.


Box prices continued lower at mid week. Last week's slaughter rates moved higher to 545,000 but seems to be weighing on the retail market leaving lower box prices as some indication of weakness in demand for beef. Traders will be watching this weekend's clearance of beef to see how restocking orders proceed. The cutout for choice was at $241 with select at $230. The choice/select spread is currently $11.


The strength in early week trading faded quickly as pessimism overtook the market and feedlots back up bids by several dollars. Much like the feedlot situation, replacement cattle are backed up and will be bunched this fall. USDA informed us July 1st of 700,000 more available feeder cattle outside feedyards and those replacement cattle have not yet come to market given the July and August placement numbers. It is more likely the government underestimated those numbers rather than overestimated them. Feeder futures are staircasing prices lower in the deferred contracts. The current feeder index number is $206 against a September feeder futures prices of just at $200.


Corn futures moved lower. The crop will be nearing completion in the next few weeks across the plains and generally is thought to be a good crop with conditions more uneven than last year. The corn basis in Guymon, Oklahoma is currently quoted at +$.50 over the September contract. Corn is now pricing into rations at $7.20 cwt. in the Oklahoma Panhandle.





Some services create a temperature like chart to show how current are feedyards in marketing fed cattle. Other analysts point to show list sizes or carryover from one month to the next. Some use marketing weights to determine currentness of the cattle. Each of these tools has its faults and each addresses a different aspect of judging currentness but one fact is for certain. The currentness of any given time requires a much more complex set of data than any one tool.


First must come a judgment of the most optimum marketing weight for the nation’s fed cattle herd as a whole. Obviously different breeds have different optimum end points for weight as is true within a breed based on specific genetics. The sweet spot for a marketing weight is that weight when the cattle are still converting feed to muscle rather than fat. It is difficult for many feeders to judge the proper out weight target beforehand either because they lack sufficient information on the cattle or because they sell into the live market and never see carcass results.


In the recent period of short supplies of cattle, packers have encouraged feeders to take cattle to heavier weights and sometimes have removed any penalties for selling cattle too heavy. This was a bonafide attempt to get more out of what you have rather than game playing. They have been largely successful and weights currently are 20# over last year and last year was another record for carcass weights. The cattle feeder has been complicit in taking cattle to heavier weights as they attempt to reduce breakevens by adding more pounds at a price well under the selling price.  For the feeder it also provides less turnover in the feedyard at a time when negative margins are present in every purchase.


Ultimately, many different parties will weigh in on this topic. The consumer can decide if cuts get to large in the packages and they don’t fit the historic fit for the home food table. Packers also can change their minds and buying criteria with larger discounts on heavy carcasses and YG 4&5s and they will if they can. Some feeders who have the data sets to track the cost of the additional pounds are quickly finding those last pounds are also the most expensive and in many cases exceed to selling price.


All of these factors eventually lead back to the point for each animal when feed ceases to convert to muscle and is instead converted to fat. If we can market at today’s out weights without increasing 4&5s then we are current but most data suggests an increasing amount of YG 4&5s over prior year. Following this logic, if you backed up carcass weights to last year’s average weight, suddenly you would have thousands of more cattle on the market.









Readers have been sending notes regarding breakeven projections. One commenter ask how we could use 80 cents for a cost of gain when everyone knows that is too low. Another ask why we are using such a high cost of gain number. The two emails illustrate the difficulty of providing one benchmark for all regions of the country. Currently a typical bases in the corn belt might be $1 under the futures and alternatively a corn basis in Hereford, Texas might be $1 over the futures. The northern feeders have much cheaper grain and more expensive feeder cattle. A more meaningful report would include one breakeven and close out for each major region. It also is difficult maintaining the tables when both fed and replacement prices are changing in $5-10 cwt. price blocks.




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 Steer1,506.00200.80
Cost of Gain 600 pounds485.390.81
Estimated Interest(Prime + 1%)35.84 
Current Breakeven2,022.44149.81
Current Futures1,934.55143.30
Net Profit / Loss-87.89-6.51


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 ago1,665.00222.00
Cost of Gain 600 pounds529.250.88
Estimated Interest(Prime + 1%)33.70 
Resulting Breakeven2,227.95165.03
Current Texas Panhandle Cash1,970.19145.94
Net Profit / Loss-257.76-19.09

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