PLAINS MARKET TALK
For the second week in a row, Friday delivered limit down
futures trading in cattle and lower cash prices for fed cattle. The price
ranges for reported trades was wide by any standards. Live prices ranged
from $159-165 and dressed from $255-$260. Regional sales Friday in Iowa and
Nebraska were at $162, Kansas at $161 and Texas at $160. With the April
contract winding down and the June contract selling at a deep discount to
current cash, packers will plan on making large inroads on their input cost
in the coming week.
Box prices improved this week but turned mixed at week's
end. Signs of a
slightly weaker dollar were favorable for teasing the export market.
Slaughter rates are also improving and this week's kill is expected to move
10-15,000 head higher. Box prices
were quoted with the choice cutout at $260 and select at $251. The choice/select spread is
widening and currently $9.
Few feedlots are following feeder futures higher as large
supplies of May cattle remain. Of course, the cash index will force
convergence in a couple of weeks. Earlier in the week cattle moved $5 lower in Oklahoma
City. Placement weights are rising and will provide faster turnover for the
processors who will always support heavier placement weights because they
provide more cattle sooner. Placements will peak in May as cattle move from
graze out wheat and oat fields to feedlots. A 750# feeder steer was selling
for $212 in the southern plains.
The southern plains, south of Amarillo, has been competing
with cheap corn in the corn belt and mid west and suffering by paying large
premiums on basis trades. This improved last week as new repeater trains, once dedicated to oil, are now
available for grain from the midwest. Corn in the Hereford area moved lower
both because of lower futures and also a lower basis. The corn
basis in Guymon, Oklahoma is currently quoted at +$.60 over the May
contract. Corn is
now pricing into rations at $8.00 cwt. in the Oklahoma Panhandle.
CONGRESSIONAL REAUTHORIZATION OF MANDATORY PRICE REPORTING
This publication has mentioned on several occasions the
simple fact that cattle operators are not entitled to private treaty
transactions between buyers and sellers on individual or group cattle sales.
Congress authorized USDA to collect market information and disburse it to
the industry making it a requirement that transactions are reported to the
government. As we see over and over in rule making by government officials
responding to a law, private interest take advantage of language or
interpretations of meaning or pathways to disclosure to avoid meaningful
The mandatory reporting law is up for reauthorization this
year. If it is reauthorized there will be suggestions of language and rule
changes. Industry participants will have an opportunity to make suggestions.
At this time there are not many people clamoring for major changes because
under today's reporting standards, most people believe they are being paid
over the market. Some simple changes could provide clear and valuable
benchmarketing information for each transaction regardless of the context of
1) time of trade;
2) basis to appropriate futures contract;
3) delivery week.
The CME also could help by providing a better contract
standard. Trading a Choice YG 3 carcass would go a long ways to providing a
better and more useful fed cattle contract. This type contract would attract
more retailers into the cattle futures by offering a product closer to the
beef products they use in the store. With three quarters of all the cattle
grading choice or better, the contract would match the nation's herd. It
also would eliminate the unnecessary and costly expense of stockyard
This past week was sufficient evidence that the current
reporting of fed sales fails to deliver meaningful information. Some critics
might charge it with delivering misinformation. When cattle purchased for
$163 in May are lumped with spot sales at $160, the reporting provides only
confusion to the marketplace.
FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE OUT
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.
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 futures contract.
|750 # Feeder Steer||1,619.63||215.95
|Cost of Gain 600 pounds||500.73||0.83
|Estimated Interest(Prime + 1%)||38.33||
|Net Profit / Loss||-111.88||-8.29
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||1,725.00||230.00
|Cost of Gain 600 pounds||544.09||0.91
|Estimated Interest(Prime + 1%)||34.88||
|Current Texas Panhandle Cash||2,200.50||163.00
|Net Profit / Loss||-103.47||-7.66
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