THE MARKETS

 

 

December 3, 2020

 

CATTLE MARKET REPORT AND ANALYSIS

  

 

 

PLAINS MARKET TALK

 

            

Cash Cattle

 

Futures fall out dimmed hopes of higher prices for this week. Packers were able to add inventory at $110 live. The improvement in trade volumes and prices Wednesday at $110-112 are gone now. Dressed sales were from $172-174 falling back today as futures sink.

 

This year has been very desirable for weather and cattle performance has been exceptional. Many January cattle are being pulled into December to market ahead of the February glut predicted by most market services. The ability of cattle owners to dodge anticipated heavy numbers is always something to watch and can contradict expectations for pricing.

 

Cattle Futures. Future prices were sharply lower.

 

The Comprehensive Fed Cattle Weekly Report offers the most current information on the current status of fed cattle being harvested. The report is published each Tuesday and includes the previous week's change in carcass weights and quality grading. The latest report shows carcass weights down 2# at 896# which remains 21# over last year. The extra tonnage continues as a burden on the market and will continue through the fall. Quality grade grading was down .3% at 81.80% remaining seasonally high.

 

Forward Cattle Contracts:  The level of futures prices relative to breakevens is a guidepost in establishing volumes of forward sales at even given point in time. Sellers have been adding to forward purchases as prices provide a profitable level to exit. Given the recent rise in grain prices, many cattle owners are reluctant to lock in forward prices at this level. Generally as forward volumes decline, basis prices improve.

 

Weekly graphs on the Comprehensive Weekly Fed Cattle Report break down the categories of trade for the week according to 1) formula cattle; 2) negotiated live; 3) negotiated dressed; 4) and forward contracts. Some cattle included in the formula category are week to week negotiated grids and not committed cattle to one plant. Other cattle designated as formula are "over the tops".

 

The Cutout. Choice box prices moved lower. Managing box prices for packers is adjusting the size of the slaughter each week to match demand. The end of the year creates more demand for higher priced cuts of beef and this year has been no exception. Rib primal cuts have set all time highs despite the impact of the virus. The choice/select spread has narrowed as it seasonally does prior to year end.

 

A normalized export share of domestic beef production is 10-15% and the past few weeks the share has moved to 25% -- exceptionally good demand from abroad. The falling value of the dollar has been a big boost to exports but also has made imported beef more expensive. A falling dollar is the friend of the beef industry.

 

 

 

 

 

 


 
Choice CutoutChoice Price Change
239.19Down $1.70
 
Select CutoutSelect Price Change
219.93Down $3.02
 

 


 

 

 

Beef Feature Activity Index. Retailers are focusing on Christmas features. The holidays usually see increases in the prices of the middle meats. Beef features are currently the top seller of the meats in many markets around the country. 

 

 

Replacement markets

 

The considerations present for year end are all about cattle numbers. The past two months have seen fairly sharp declines in feedyard placements. Many question whether this is the beginning of shorter supplies of stocker and feeder cattle or cattle owners holding off on sales until after year end. Grow yard numbers are higher and wheat field grazing numbers are lower. The proforma for cattle placed on feed currently would suggest there are better options for investment than cattle feeding. The new year will likely bring replacement costs, feed cost and fed prices more in line with today's price relationships. Futures traders see an opportunity for a reverse crush.

 

High grain prices changes the selection options for buyers who want to finish cattle in the nation's feedyards. High grain pushes buyers towards heavier offerings rather than put more high priced feed into lighter cattle. The projected feed costs will cause some feedlots to let occupancy levels fall rather than pen lighter weight cattle with breakeven dollars above board prices. Some lighter cattle will find homes in grow yards where rations tend to be weighted to more forage. It also is not too early to watch for spring wheat field grazing. The dry winter months can soon turn to the growing season and with some winter moisture some wheat fields could open as early as February.

 

Oklahoma City. Prices for replacement cattle moved $3-6 higher this week. Demand is good for all classes of cattle.

 

Feeder Cattle Futures. Feeder futures were sharply lower.  

 

Feeder Cattle Cash Index. The index is tracking the moves in cash prices.   

 

Forward cattle contracting. Feedlots, with much uncertainty about feed costs, are becoming reluctant to be active in the forward markets or are lowering their basis bids. Stockers operators are making regular inquiries about basis levels in the hopes of pricing cattle that will hold margins together.

 

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

 

Grain Futures. Corn prices turned higher in late week trading. Basis levels are trying to soften and as we approach year end there will be more farmer selling of corn. Current basis trades are for Nov/Dec corn 85 over the December board in Guymon, Oklahoma. Corn is now pricing into ration at $9.10 cwt. in the Oklahoma Panhandle.

 

 

EV ON THE RANGE  

 

To date, there has been only talk and little development of electric vehicles [EV] for American agriculture. Whether located on a farm, ranch, or feedlot, electric vehicles are coming. The rationale for change is compelling and the speed of change will surprise many. Tesla and others are planning the first pickups with a driving range of 300-500 miles. There are few distances in rural American where 400 miles in a day would fail to be adequate for a farm truck. Nightly recharging is perfect for ranch and farm operations and dovetails into many electric use rates that are built around higher prime time rates leaving nightly charging at the lowest rate.  

 

Pickup trucks are the meat and potatoes of U.S. vehicle sales. Already pickups and SUVs make up two thirds of all vehicle sales and the percentage is expected to move higher. The internet has diminished profit margins on new vehicle sales and more and more dealers are making their profits from servicing vehicles. Computerized diagnostics and sophisticated electronics on all vehicles present a problem for the owners who are stuck with large fees for servicing and diagnostics that can only been done at the service center. Combustion engines are complex and have lots of moving parts requiring expensive maintenance costs.  

 

Electric vehicles are simple. There is a chassis on top of a battery with software running the operating mode. This fact simplifies the maintenance and reduces operating costs. Requiring the expensive repairs to be done in town always presents a problem for rural locations and leaves operations without a vehicle for days at a time while expensive repairs are completed. Whether it is conventional heavy equipment, tractors, trucks or pickups, they all are expensive to maintain. Enter the electric vehicle: Battery powered electric vehicles (EVs) are on track to achieve this break-out.  They already enjoy several advantages: ·      

 

EVs are three times as efficient as gasoline vehicles: 59%-62% of the electrical energy is converted into power to turn the wheels. Their efficiency means that they cost little to operate: a typical electric vehicle can travel 43 miles for $1 worth of electricity. This is about one fourth of the fuel cost of typical 2018 gasoline-powered cars and SUVs.

 

EVs have far fewer moving parts than vehicles with internal combustion engines, so they are more reliable and require less maintenance.

 

EVs can accelerate faster than gasoline cars, for a variety of engineering reasons. The new Tesla pickup will tow 300,000#.

 

The electricity for EVs can be generated using zero-emissions technologies, such as solar PV, wind, or hydro.

 

Software updates are completed over the web and all the latest tools are at your fingertips.

 

The electric vehicles combined with GPS guidance systems will be the killer app for rural America. Driverless vehicles are closer every day and GPS guidance has already moved to the farm and the tractors, and it won’t be long until feed trucks at the feedyard are delivering feed absent a driver. The move to electric vehicles in agriculture will begin in the coming year and by the end of this decade will dominate vehicle sales. By the end of the decade, many of these vehicles will be driverless and much of the electricity to run the vehicles will come from on farm wind or solar panels combined with battery storage that is progressing to store self-generated energy.   

 

 

 

 

CATTLE REPORT LIBRARY

 

Below are links to articles published in the Cattle Report pertaining to industry change. Two important changes are on the table for progress -- supply chain management and animal ID. Both applications will transform and disrupt the industry.

 

THE BEEF BLOCKCHAIN

 

THE BEEF BLOCKCHAIN SLIDE SHOW

 

The Case for National ID for Cattle

 

Reforming the Futures Contract and Cash Trading of Cattle

 

 

NOTE TO READERS

 

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

 

 

 

 

FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE OUT TABLES

 

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 futures contract.

INPUTSTOTAL$$CWT
750 # Feeder Steer1,048.50139.80
Cost of Gain 600 pounds560.410.93
Estimated Interest(Prime + 1%)27.14 
Current Breakeven1,630.53120.78
Current Futures1,502.28111.28
Net Profit / Loss-128.25-9.50

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 ago975.00130.00
Cost of Gain 600 pounds526.030.88
Estimated Interest(Prime + 1%)21.62 
Resulting Breakeven1,522.65112.79
Current Texas Panhandle Cash1,498.23110.98
Net Profit / Loss-24.42-1.81

 

 

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