August 29, 2014  








Packer bids of $153 were refused and a few cattle were purchased at $155 yesterday encouraging sellers to hold firm to mostly $156 asking prices. Packers will resist what would amount to a increase of $3 in cash prices. Futures prices jumped $2 as traders sense the larger looming supplies of cattle may be a mirage. 


For efficient markets to work, futures markets must at some point converge to cash markets. Often the judgment of a valid and functioning futures market is how well the future converge at the contracts termination. This week will witness the expiration of the August live cattle and feeder cattle contracts. Both contracts are converging to the current cash prices as designed. The feeder contract is sitting on top of the cash index. The live cattle are moving towards the last reported cash prices.


The pattern of the next live cattle month [October] follows the same pattern of all other contracts this year. The next month out trades at a large discount to the current cash markets. Cash prices have to date always pulled up the deferred contracts but that is not a rule of commodity or cattle futures. Cash could move down to match the futures. The fact that deferred futures are trading at a discount simply means there are an insufficient number of longs willing to bet on higher prices in the future.


Box prices weakened into week's end in spite of the expected smaller slaughter level expected next week. The lower beef prices may encourage retailers to add more features for the post holiday period which as the weather cools tends to be a good beef eating period. Choice box prices were quoted $247 with select at $237 and the spread widened to $10.


Theories of bunched feeder supplies in October have left many feedyards with empty pens waiting to reload this fall. If those heavier runs fail to develop, many yards will go into the winter with limited capacities. The in weights of the cattle on feed report reflected the fact that feedlots are pulling forward on dwindling supplies of feeder cattle. The average weight of cattle placed on feed was in decline. Supplies for current delivery are tight and breakevens for current purchases are in the mid to high $160s with futures prices in the $150s. There may be some bunching of placements in October this year as the summer grazing season concludes. A 750# feeder steer was selling for $216 in the southern plains.


The Pro Farm tour is estimating corn yields and those estimates are higher than USDA estimates. Some corn harvesting in the south is pushing grain up to the plains feeding areas. DDGs and other ethanol byproducts are being offered into the market at favorable pricing for cattle feeders. Corn is offered at $1.10 over the September contract basis Guymon Oklahoma. Corn is now pricing into rations at $8.65 in the southern plains.




WTO rules against USDA on COOL


In a decision reported in the WSJ, the World Trade Organization declined to accept the USDA rules on COOL. The decision surprised no one and will once again place government officials in an untenable and embarrassing position of having wasted hundreds of millions of dollars over a trade policy that the industry and our trade partners recognized as wrongheaded.


The COOL legislation will always be remembered as a low point in public policy, combined with legislative jingoism run amok, and topped off with bureaucratic bumbling that borders on idiocy. The program has been a nightmare for those compelled to follow the rules and has been a unnecessary price burden on every consumer who has purchased a piece of beef. Polls have consistently confirmed that very few consumers ever knew of the programs existence.


It was initiated by well intended ranchers who sought recognition for a beef product raised, grown and fed in the United States. This is all fine but it does not require Congress to pass a law authorizing it. It simply requires enough product to attract a consumer following and a processing partner with a label setting forth its advantages and benefits for the public.


It has resulted in hostile trade retaliation from Mexico and Canada. Both countries were once primary trade partners on the purchase of American beef. The COOL rule has stimulated cattle feeding operations in Mexico by encouraging Mexican ranchers to stay at home and feed their cattle rather than suffer the large discount in price and export them to the U.S.. This could not have happened at a worse time when U.S. cattle operators need access to all supplies of replacement cattle.


The decision has not been officially announced but has crept into the pricing of Mexican cattle over the past two weeks. Feeding firms with advance knowledge started purchasing Mexican cattle with no COOL discounts. The decision is expected to be formally announced in September. Our government would like to delay the announcement past the mid term elections.






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 Steer1,638.83218.51
Cost of Gain 600 pounds494.830.82
Estimated Interest(Prime + 1%)38.67 
Current Breakeven2,167.45160.55
Current Futures2,089.80154.80
Net Profit / Loss-77.65-5.75


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 ago1,312.50175.00
Cost of Gain 600 pounds550.160.92
Estimated Interest(Prime + 1%)27.73 
Resulting Breakeven1,890.39140.03
Current Texas Panhandle Cash2,052.00152.00
Net Profit / Loss161.6111.97


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