May 24, 2017. 



BOC Loan





Cash Cattle. Packers have been quiet all week in spite of the fact of smaller show lists. The smaller show lists this week was under prior year for the first week in many weeks. Cattle owners will have the first opportunity for price discovery this morning on the online fed cattle auction. Monday's optimism caused mostly by a rise in futures prices, lost some steam yesterday as futures lost ground.


Last week's cash trades of $134 in the south and $134-135 live in the north were mostly $4 lower -- taking the cash market down $12 in two weeks. Dressed sales at $214 to $215 were $5 lower for the week. Volumes were only moderate as packer position themselves to carry smaller inventories rather than larger ones of the past couple months.


Cattle Futures. Futures lost ground on Tuesday as packer interest appeared to be light based on their representations of holding on to large inventories of cattle for next week's shortened slaughter needs.    


Next week will take us into the June delivery month. The June contract is trading $10 under the last reported cash price. Hedged feeders are enjoying a long sustained period of positive selling basises capturing many dollars of premiums on hedged inventory. Convergence will begin soon.


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 May 6th, had steer carcass weights falling 10# to 832# remaining 30# under prior year. Heifers were 15# under last year. 


Forward Cattle Contracts: Packers purchased only 6000 head for June following the previous week's 30,000 head June purchases. These purchases continue to be misreported as to delivery period and basis status. The errors consist of placing 15-30 sales in the spot market sales, and reporting flat price forward sales as a Par basis sales.


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. Box prices were lower on the choice grade. The failure of box prices to provide incentives to retailers to buy forward has slowed some summer beef features. Some of those features have switched to pork as indicated by the rise in the pork cutout. Last week's modest slaughter of 608,000 head is not a sufficient number to keep feedlots supplies in the current position. Beef demand normally improves into summer as consumers opt for more beef cuts in the cookout season. 


The choice/select spread continues to widen as decreased grading and forward sold choice product force the spread to widen. The choice quality grade has been devalued as the percentage of cattle grading choice increases over the past several years. More angus cattle, longer days on feed have all contributed to more choice cattle. In an effort to match beef products up properly to the market they target, processors need more definition within the choice grade. More definition means more quality grades or sub-categories of the choice grade. 





Choice CutoutChoice Price Change
249.40Up $1.71
Select CutoutSelect Price Change
225.50Down $0.01









Replacement markets


Spring placements are continuing strong across the plains and each month posting placement increases over prior year. Larger numbers are met with higher prices as a healthy feel creeps across the marketplace. With the peak movement behind us, there is likely to be increasing interest in purchases for the summer months.


Oklahoma City and OKC West. Prices are higher on all classes of cattle in early week trading.


Markets will transition from spring to summer as heavy yearling runs decline and summer replacement sources re-channel. The hard thin offerings seen during the winter months are replaced with fleshy bawler types. Bawling calves means increasing health risk and heath risk means more medicine cost and death loss.


Feeder futures. Feeder futures lost ground with the live contract. Most deferred months are holding on to premiums to current cash prices.  This premiums have encouraged broad industry hedging in the feeder contracts. 


Feeder Cattle Cash Index. A unique feature of this year's markets is the inverse relationship between live cattle futures and feeder cattle contracts. Live cattle have traded most of the year at large discounts to the cash market. Currently, the feeder contracts, by contrast, are carrying premiums to the cash market and especially into the fall months.   


Forward cattle contracting. The only activity in forward contracts was for summer periods. Prices were mostly $3 discount to the board for summer on 800# steers delivered to the Texas Panhandle. 


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


Corn futures. Corn and wheat futures moved lower. Corn plantings were moving forward with good moisture. The same good moisture will help complete the wheat crop due to be harvested in 30-45 days. The corn basis has been moving higher and is now quoted at 50 cents over July in Guymon, Oklahoma. Corn is now pricing into rations at $7.50 cwt. in the Oklahoma Panhandle.




The solution to the reporting problem exists and can be quickly implemented. It is called a block chain and takes each transaction for cattle either fed, feeder or stocker and creates a block transaction, confirmed by buyer and seller, then linked to a chain in time order. Transactions would be posted in a linear time line and would include the delivery period, by week for the first 30 days then by two weeks, up to 60 days then by month. Industry participants could view the blockchain but not individual transactions or names. They could review transactions by region, by delivery period, or nationally. The block chain would serve as a cash settlement tool for the CME live cattle contract that is struggling. Industry leaders say it is a good idea but needs to be studied and will take years to implement.


A group of Aussie wheat farmers didn't agree. They were unable to find prices offered by grain terminals in different geographic locations. They were forced to simple accept the local bid. Furthermore, once they accepted bids for their wheat, the settlement and clearing of the transaction took 45 days. In six months they put in place a blockchain that now allows them to view bids from locations all over their area and has decreased the settlement and payment to two business days.





Brazil has taken a front seat in agricultural production and global world trade in ag commodities. Dominance in meats and grains is acknowledged world wide and market making news is often sourced from Brazil and those choosing to ignore Brazilian preeminence are doomed to miss a major player on the world stage.


JBS and the Batista family have become emblematic of Brazil's role in agriculture. Beginning in the 1960s as as a small beef company, JBS has emerged as the world's largest meatpacker dominating the beef, pork and poultry markets around the world. Led by the Batista brothers, Joesley and Wesley, the company has risen from a domestic processor to acquiring major U.S. meat companies like Swift and Pilgrim's Pride, Cargill's pork operation as well as major processing firms in Australia and other South American countries.


On Friday, revelations by the Brazilian Supreme Court, revealed a darker side of business in Brazil -- one commonly known to many companies doing business there, but never publicly acknowledged. Bribery is part of the fabric of business life in Brazil and it has become ingrained in many of the commercial transactions. The documents released Friday revealed bribes paid by the Batistas to politicians going back through the last three heads of state as well as other political functionaries important to grease the wheels of commerce in Brazil. The Batista plea bargain agreement released by the court allowed them to continue business activities in return for exposing the underbelly of political corruption.


The Batistas apologized and admitted mistakes, but highlighted the difficulties of doing business in a government requiring payments to government officials in order to engage in commerce. JBS is caught in a quagmire faced often by American companies doing business abroad and forced to make payments either disguised, or under the table, to do business in some countries. Whether you are Walmart opening new stores in Mexico or an oil company making an oil lease, our companies are prohibited from bribes but find themselves struggling to compete in a world of payoffs.


We are not holier than thou and the actions taken by many lobbyist in this country are often questionable. Campaign donations are often accompanied with quid pro quo requests. Our influence pedaling is more subtle and is subject to intense scrutiny by a free press. Our disclosure rules are a good step and attempt to make transactions transparent and wrongful actions discoverable and punishable.


Purging corruption around the world is a big job but an important step in leveling the playing field. Business is best served when joined to the rule of law and Brazilian politicians are now finding opportunistic choices in the past may lead to jail time in the future.








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 Steer1,083.75144.50
Cost of Gain 600 pounds487.610.81
Estimated Interest(Prime + 1%)30.98 
Current Breakeven1,596.34118.25
Current Futures1,605.83118.95
Net Profit / Loss9.490.70


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 ago915.00122.00
Cost of Gain 600 pounds469.780.78
Estimated Interest(Prime + 1%)22.45 
Resulting Breakeven1,407.23104.24
Current Texas Panhandle Cash1,803.74133.61
Net Profit / Loss396.5129.37



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