July 3, 2015  







In a surprising turnaround in the live market, live cattle prices jumped $2-5 cwt. in trading this past week. In the south cattle sold for $150-152 while Nebraska cattle brought up to $153.50. Dressed prices were mostly at $240 -- also $2-4 higher. Packer inventories had been depleting as they were able to buy cattle lower but the need to replenish found inadequate supplies and forced prices higher. 


The corn market made a major move higher following and preceding a USDA report. Wet weather and a deteriorating crop condition sent corn up 75 cents on the CME board. The deterioration in this year's crop has ramifications for the ethanol industry, pork producers and chicken producers. Most immediate of concern is to those feeding cattle or selling replacement cattle. Adjustments will be necessary for all producers of meat products and soy related products also move sharply higher threatening protein sources for feed rations.


Beef prices were lower to close a holiday shortened week. Processing margins are large at the current level of live and box prices. Box prices were steady to mixed at mid week. The slaughter rate for this June will be remembered as the smallest in modern history. Choice cuts were at $250 and select at $248. The choice/select spread is currently $2. The choice/select spread has narrowed far beyond normal seasonal patterns.


The toll of increased grain prices on feeder prices will be significant. The spread between fed prices and feeder prices had been unusually wide and now is expected to narrow. This will come in the second six months of the year when feeder supplies will be increasing and prices are expected to decline. Prices next week are expected to be sharply lower for all replacement cattle.


The crop ratings sank and the crop conditions now are in poor shape when compared to the past 10 years due to wet fields. Tuesday's USDA report confirmed damage caused by flooded fields in the corn belt. It is rare to see grain market jump skyward from too much rain but traders are now looking back to years in the 1990s with similar conditions. The corn basis in Guymon, Oklahoma is currently quoted at +$.60 over the July contract. Corn is now pricing into rations at $8.50 cwt. in the Oklahoma Panhandle.




JBS, the Brazilian meat giant, purchase all of the hog production and processing facilities of Cargill for $1.45 billion. This is the first move into live hog production for JBS and will require justice department approval before being final.






The cash prices for fed cattle last week crossed the graph line with last year and fell below last year's prices for the first time this year. Last year, the last week of June found fed prices near $155 vs. this year's $148. Some traders and cattle owners are looking at the fed supplies this year, indicated by a steer and heifer slaughter that is 50,000 head per week under last year, and wondering how we can be selling cattle lower than prior year.


In rounded numbers the answer is fairly straight forward. The average daily slaughter of cattle has declined 6% from last year. The slaughter weights are heavier than last year and there are more steers in the mix due to holding back heifers for rebuilding. These two factors helps to reduce the tonnage loss to approximately 2.5%. In the meantime, hog slaughter is up 6% over prior year and chicken production is up 4% over last year. Food service and grocery stores are making money selling plentiful pork and chicken.


Supporting the large supplies of total meat has been beef imports that are dramatically higher than last year assisted by a strong dollar. All of the countries sending beef to the U.S. have ramped up business and volumes are running 25-50% over last year. The imported beef has struck a blow to the grind market that led the summer rally in cattle prices last summer. Also aiding in the decline of fed prices this year has been the drop credits. Hide prices are 25% under last year and all drop credits are taking $50/head from the packer's bottom line.


The analysis early this year that caused the first large decline in cattle futures cited large competing meat supplies, large imports and heavy weights as ammunition for a fed market in steep decline. Since those early forecasts, futures prices for summer and fall have stayed in a fairly tight trading range hovering around $150 while fed prices have fallen from $170 to $148. But where do we go from here.


Last year cattle prices for fed cattle continued to rise into the fourth of July and beyond taking prices into the $160s. This year packers have pared the June daily slaughter level to the lowest in modern history in an attempt to regain some bargaining leverage over cattle owners who have been able to hold on to those high prices in spite of box prices that seem to decline with every slaughter week that exceeds 550,000 cattle. More cattle will be available in July but the pipeline of beef is short bought and retailers have the ability to push move beef if the economic incentives are there.








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 Steer1,630.88217.45
Cost of Gain 600 pounds500.350.83
Estimated Interest(Prime + 1%)38.56 
Current Breakeven2,164.85160.36
Current Futures2,088.86154.73
Net Profit / Loss-75.99-5.63


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 ago1,800.00240.00
Cost of Gain 600 pounds527.810.88
Estimated Interest(Prime + 1%)36.05 
Resulting Breakeven2,363.86175.10
Current Texas Panhandle Cash1,997.73147.98
Net Profit / Loss-366.13-27.12

Click here to "Check out the markets "
Click Here to send your comments