PLAINS MARKET TALK
Cash Cattle. Asking prices moved higher and show lists moved lower. The
ag markets began uncoupling from the EU news and will develop their own
track as the 4th holiday approaches. Packers will be purchasing for one less
day next week. Most asking prices moved to $120 and many sense a bottoming
to the summer market. Additionally a moderation of the summer heat also
appears across much of the nation.
Carcass weights are some good indications of the currentness of the feedlot
marketings of fed cattle but taken alone, they require additional analysis.
Herd rebuilding requires heifers and typically in herd rebuilding mode, more
steers are placed on feed and when all carcass weights are calculated the
fact of inclusion of more steers will naturally raise carcass weights.
Because of recent price declines, one might expect the beginning of a period
when more normalized heifer placements will return and as the percent of
heifers in the slaughter moves higher, it will lower carcass weights. This
might impact carcass weights later this year or early 2017.
Cattle Futures. Futures paid more attention to market fundamentals and
less to the cross currency exchange rates. The higher prices were more a
continuation of a rally that ended last Thursday than the setback from
Friday. The spot June contract will expire this week. Cash and futures
converged on June but remain spread by several dollars on the August
contract soon to become the spot month. Several technical indicators turned
bullish with the August holding a technical bullish signal by closing above
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 June 11th had carcass weights up near flat
on steers leaving weights just under last year by 5#. Seasonally, carcass weights should begin to rise
from this point forward. 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.
Contracts: A look at forward sales for July through year's end
reflects increases in the numbers of forward contracted cattle by the beef
plants. Many or most of these contracts are accompanied by short positions
in the market and some are matched with formula sales to retailers. When the
June contract expires this week, packers will be inclined to buy out two or
three weeks hoping to depress the spot market by offering good basises to
the feedlots hedged in August. Most of
the forward sales for October are trading at Par to the board price.
The weekly breakdown of fed cattle moving to the beef processing plants is
as follows. 1) formulas 55%; 2) negotiated 25%; 3) forward contracts 20%.
The Cutout. The choice cuts fell in early week trading. The
choice/select spread that only recently topped at $25 has now narrowed. Margins at the beef plants and retail stores remain generous
and this type operating environment will continue to influence larger
slaughter levels. Last week's slaughter volume was revised to 611,000 making
it the largest in 2 years.
|Choice Cutout||Choice Price Change
|Select Cutout||Select Price Change
Oklahoma City. Oklahoma City prices were $5 higher as last week's rally
in futures and decline in grain prices translates into new demand for
Calf prices are not moving higher at the same pace as
yearlings. New crop
calves and hot weather are discouraging risk taking by stocker operators. All classes
of calves are quoted $10 lower. Range conditions are mixed with some areas
of the southwest dry and fire hazards common.
Stocker operators are watching the deferred feeder futures
and are moving some marketing periods forward rather than wait and face a
lower price. Weights this spring have been heavy off winter grazing fields.
Pasture conditions are generally good across the plains although hot and
windy weather dries many pastures quickly.
Feeder futures followed the live cattle contract higher. Volumes in the
feeder contract are extremely light.
Feeder Cattle Cash Index. The index will track cash prices leading up to
the expiration at the end of summer of the August contract. Basis trades off
the August contract vary for July from -$1 to +1 for a 775# steer.
Weekly Feeder Summary released on Friday of each week tracks the
national prices by region for last week.
Corn jumped 10 cents overnight and the rise will influence cattle prices. Weather and export news which means the value of the dollar
often dominates price moves in the summer.
Wheat harvest is underway in the southern plains and the crop is large.
Wheat is trading into many feedyards at .40-.50 under the July contract. The corn basis is currently around
15 over the
July contract in Guymon
Oklahoma down from .60 over last year. Corn is now pricing into rations at $7.00
cwt. in the Oklahoma Panhandle compared to wheat at $6.75 cwt..
WHY DOES BREXIT MATTER?
Few ag analysts concerned themselves with the vote in England to Remain or
Leave the EU. We export very little beef to the EU and the little beef we do
export must conform to strict guidelines of no hormones. Trade with the EU
in general is tedious with lots of bureaucratic red tape associated with
trading protocols. Our stock market had been on the rise all week as odds
makers and pollsters felt confident the UK would stay in the EU. London
bookmakers were taking bets for Remain as a 3-1 favorite.
When the vote was tallied and the Leave vote prevailed, more thoughtful
consideration of the ramifications was brought to the forefront. Many voted
to leave as a protest. Those voters are sick, like many in this country, of
the arrogance and incompetence of the leadership of the government. Now the
vote is in, people are realizing that no matter your business or your
country, the vote will have far reaching consequences. It also could preview
additional fall out of other withdrawals from the EU or even withdrawals
from Great Britain by Scotland and Northern Ireland. Immigration and the
lack of monetary control over member states are at the core of trouble in
For those of us in the beef industry, the immediate impact was a very sharp
rise in the value of the dollar. Our exports have been rising over prior
year primarily driven by the decline in the value of the dollar. This rise,
the largest in many months, will threaten a continuation of the rise in our
exports. Exports of beef from this country, while only 15% of the market,
often make the difference in the balance between production and demand.
Brexit also presaged a lowering of our domestic growth rate because of trade
disruptions and uncertainty regarding future exports of all goods from this
country. Less growth in this country is a factor in providing new jobs and
job growth accompanies good demand for beef.
On the positive side, beef trade with Great Britain might improve as new
standards are adopted for exporting beef to England. The restrictive
measures of the EU might be discarded in new trade agreements with the
While the fall out in cattle futures last week because of Brexit was
probably overdone, uncertainty and confusion are never good for markets.
Many analysts felt last week was setting summer lows for fed cattle prices
and so now throwing a wild card into that matrix, leaves renewed attention
on the coming few weeks for all markets.
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||1,047.38||139.65
|Cost of Gain 600 pounds||486.76||0.81
|Estimated Interest(Prime + 1%)||28.87||
|Net Profit / Loss||-46.35||-3.43
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||1,110.00||148.00
|Cost of Gain 600 pounds||462.70||0.77
|Estimated Interest(Prime + 1%)||24.81||
|Current Texas Panhandle Cash||1,634.72||121.09
|Net Profit / Loss||37.21||2.76
Click here to "Check
out the markets "
Click Here to send your comments