June 21, 2018                                  









Cash Cattle.


The market featured some information from the online auction as packers bought several pens in Nebraska at $110 and bid up to $112 on Kansas cattle that the owner passed the bid. In the north a few dressed sales occurred in the north at $177-178. Most asking prices are $114-115. Sales last week at $112-113 live and $178-180 dressed were $2 lower helping maintain extraordinary margins in the processing plants.


The China/US trade wars are especially noteworthy and concerning to the United States ag markets. We buy as much as 5 times the goods and services from China as they buy from us. When we apply trade tariffs we are provided a lot of product options. When they apply retaliatory tariffs, they have fewer options and the ag products such as soybeans, corn, beef, pork and poultry rise to the top of the list. Soybean production in this country would undergo a major change if tariffs are applied and many farmers would switch back to corn.


Slaughter the week of June 3rd was 658,000 head --- the largest in several years. This past week recorded a slaughter of 654,000 head and this week may be even larger with the 4th of July near at hand. Packers are making hay and all processing plants are in ramp up mode.  


Cattle Futures. Futures moved higher to narrow the gap between cash and futures for June and with the soon to be spot month August contract also gaining price. June is holding a $2 discount to cash.


Carcass weights are released each Thursday and are a closely watched barometer indicating the position of cattle feeders in the nation's feedlots. The last report released for the week of June 9th, had steer carcass weights unchnged at 851# and still remains 4# over last year. Heifers are also 10# over prior year with more heifers in the mix.  The seasonal low appears to be in and weights are now moving higher and will be expected to continue higher all summer.


Forward Cattle Contracts: There are no cattle feeders interested in pricing cattle off the forward summer contract months.  


The weekly breakdown of fed cattle moving to the beef processing plants is as follows. 1) formulas 55%; 2) negotiated 20% [both live and flat dressed]; 3) forward contracts 25%. Some of the formula arrangements are week to week negotiated prices and not committed cattle to one plant.


The Cutout. The cutout continued lower losing over $5 from one week ago. Retailers are now purchasing for post holiday store needs. The choice/select spread has narrowed from a high of $26 to $16. It also seems obvious beef cuts are fairly stable and demand good for both forward bought and current shipments.


Beef Feature Activity Index. This is the most active period of the year for beef features. The period leading up to the 4th of July will move a lot of beef and then will follow a slower period of beef demand until the weather starts to cool. Beef features are often planned months in advance. Retailers might sense we are nearing the bottom in live cattle prices and anticipation of buying beef cheaper might look more remote. 


Cutout Values as of Thursday, June 21, 2018
Choice CutoutChoice Price Change
217.41Down $0.88
Select CutoutSelect Price Change
201.61Up $0.56
Choice/Select Spread


Replacement markets


The southern plains and parts of the southwest have received some much needed rain. It is possible the rains will curtail some of the cow liquidation that had been occurring and might slow yearling movements off pasture. Receipts are most auctions throughout the country will resume a more normalized volume of cows and calves that feed into the market each week.


One obvious implication of the large slaughter volumes of the past few weeks and upcoming weeks is the pen space that will be opened up. This will create a healthy demand for replacement cattle no matter the direction of the fed market. Fed prices and feeder futures will guide the price for yearlings but the need will be large at a time of year when there normally is not a large supply of range cattle.


Oklahoma City. The Monday sale reported higher prices on yearling steers and heifers and lower prices on fleshy calves. This time of year a bifurcated market develops between weaned and un-weaned calves or weight classes of cattle.  New crop calves are entering the market and those fleshy calves often create serious health risks and many buyers shy away from bidding. This provides are difficult market to report because nice quality calves are selling at large discounts to their plainer short yearling cousins.             


Feeder futures. The feeder board was modestly higher in the deferred months.                         


Feeder Cattle Cash Index. The cash index continues well below the August feeder board.       


Forward cattle contracting. The rising feeder board has many forward buyers widening their basis bids. The basis bids that exist are $3 back for 800# fall steers delivered to the southern plains feedyards. 


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


Corn futuresCorn prices are finding a bottom after posting multi-trading sessions of down movement. The causes are twofold -- trade wars and ideal growing weather. The basis, currently at 65 over the July board in Guymon, Oklahoma. Corn is now pricing into rations at $7.40 cwt. in the Oklahoma Panhandle.


Cattle on Feed Forecasts


                   IN YARDS WITH MORE THAN 1,000 CAPACITY
                                                  AVERAGE            RANGE
                                   ACTUAL       OF ESTIMATES     OF ESTIMATES
CATTLE ON FEED           June                          103.4      102.8-104.4
PLACED DURING             May                           95.8       93.0-100.8
MARKETED DURING           May                          105.2      104.7-105.7







Rarely is it possible to set up the right conditions leading to extraordinary margins in any given sector of the cattle industry but rarely doesn’t mean never. The breeder had their day a few years ago when the cattle cycle hits it lowest numbers and calf prices hit their highest price level ever. Cattle feeders enjoyed the same boom/bust scenario with record high fed prices and the attendant excessive profits per head follow by an entire year of crashing markets. Packers are enjoying their day in the sun now as herd expansion moves beyond processing capacities and the gate keepers are in control of the pricing to gain admittance to the plant doors.  


Capitalism is designed to respond to market signals and nothing gains more scrutiny than observing the world of extraordinary profits. Predators jump at the chance to take advantage of unusual circumstances in any given markets. Profits of $300/head is a trigger for entrepreneurs to put lots of thinking caps on, in an effort to join and exploit the Hayday. The trouble is you don’t jump into beef processing in the same way you can jump into feeding cattle when feeders see large profits. Beef plants are strategic assets that are not easily built or reopened and the existing beef packers have little desire for more plants that would undermine their gold mine.


Meanwhile the processor’s Hayday is delivering trouble across the nation’s feedlots. Most feedlot breakevens are in the mid $120s currently and prospective sales of newly purchased replacement cattle are big time losers with projected losses of $100 per head. This situation of $100-300/head losses now and $100/head losses on the horizon has caused more consolidation in the feeding industry. Rumors of feedyards for sale and occupancy levels falling are common. The economic pressures to lower incoming costs on replacement cattle will threaten the stocker operator then finally the breeder. The processors know where the money is and they have all bailed out of the cattle feeding business.


On top of all of this, all industry participants must deal with trade wars that confuse and confound the marketplace. Daily announcement drive prices up or down but overarching all the markets is uncertainty. The trade wars don’t appear to be concluding and the early bluster of the trading partners has not turned into behind the door negotiations that should resolve the issues but instead hangs like the plague over the ag markets.


All is not bleak and it never is. Exports are increasing each month this year in spite of a rising dollar. Domestic demand is good. Restaurants are increasing sales by 5% year over year. Employment is at an 18 year high. Packers are slaughtering 650,000/head a week and that volume is not trashing the boxed beef market. Numbers of fed cattle are expected to moderate by year end and prices might recover from summer lows.


Boom or Bust, the component lacking in the industry is reform. The need to retool has become symptomatic of a fatal flaw in the beef business – a failure to change and adapt to a changing world. Food won’t be going away because people need to eat, but the industry sometimes forgets the consumer has eating choices and a meat product like beef that fails to respond to changing consumer needs, is a threatened product. In the end bringing about change requires leadership.







Below are links to articles published in the Cattle Report pertaining to industry change.






The Case for National ID for Cattle


Reforming the Futures Contract and Cash Trading of Cattle





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







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. 




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 Steer1,109.63147.95
Cost of Gain 600 pounds467.350.78
Estimated Interest(Prime + 1%)31.33 
Current Breakeven1,602.55118.71
Current Futures1,518.08112.45
Net Profit / Loss-84.48-6.26


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 ago1,125.00150.00
Cost of Gain 600 pounds523.930.87
Estimated Interest(Prime + 1%)27.07 
Resulting Breakeven1,676.00124.15
Current Texas Panhandle Cash1,516.46112.33
Net Profit / Loss-159.55-11.82



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