December 15, 2017



BOC Loan




Cash Cattle.


The standoff ended following a strong close on the live cattle futures when cattle traded in the southern plains at $120 -- $3 higher than last week.   


Feedlot perform may encourage some sellers to hold cattle to market after the new year. Gains are exceptional for this time of year and out weights are rising. Higher out weights produce lower breakevens but come at the cost and risk of a winter storm that so far has been missing from the picture. Carcass weights normally peak in November and we are near the second half of December and they are still rising. Some packers have reported sending back individual cattle weighing over 1600#.


Cattle Futures. Futures prices were higher as traders anticipate steady to higher fed prices.          


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 December 2nd, had steer carcass weights down 1# at 904# which is 10# under prior year. Heifers were 5# under last year but there are more heifers in the mix lending to lower overall weights. This is the first decline posted by the report in many weeks. Pen conditions are ideal for cattle feeding and cattle are performing well into the winter.


Forward Cattle Contracts: Packers were more active last week in forward cattle purchases. The largest volumes were for March and April delivery off the April board at Par to +.50 cwt.. 6-7,000 head traded in each month.     


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 was modestly lower in late week trading. Packers pared back the slaughter this past week in order to maintain stability in the box prices. The spread between choice and select has held above $20 -- also large for this time of year. 


Retail interest will now turn to after the new year plans and decisions will be made on post holiday features. 


Beef Feature Activity Index. Beef specials serve as drawing cards into the stores and are profit centers. This new link provides perspective on the level of feature activity week by week in the country.


Cutout Values as of Friday, December 15, 2017
Choice CutoutChoice Price Change
201.87Up $0.83
Select CutoutSelect Price Change
183.25Down $0.44
Choice/Select Spread

Replacement markets


Cattle feeders, with profits from the past year in hand, have willingly jumped into the replacement market re-buying with each closed out pen and hoping for another round of profits. The result has been a overheated feeder market pushing prices to one of the widest feeder to fed cattle spreads in recent times. Buyers have thrown caution to the wind hoping each price decline will soon be followed by a rally restoring close outs to a profit.


Politicians feel your pain but the independent cattle market recognizes no ones pain and operates with an independence that is often harsh and punishing. Many cattle owners are awakening to the fact they may have overpaid for replacement cattle in the last half of this year and the upcoming weeks and months of sales might not bring the good news of this year's brisk beef demand. 


Weather may begin to play a role in cattle movements and placements into the nation's feedyards. Mild temperatures have covered much of the plains and very little moisture has been reported this winter season. Some winter grazing pastures are beginning to suffer and without moisture many cattle may start to move after the first of the new year.


Oklahoma City. The market is diverging by weight class. Heavier yearlings were $5 lower while some classes of light weight calves were steady to higher.


Feeder futures. Futures gained with the live contract.       


Feeder Cattle Cash Index. The index now will recalibrate and track prices for the January contract. January feeder futures are discount to current cash but cash is turning downward.       


Forward cattle contracting. Feedlots are featuring out front purchases for March through May at discounts to the board prices varying from Par to $3 under depending on location and delivery point. One large feeding company has dropped from purchases forward contracts leaving softness in the forward market.


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


Corn futuresCorn prices stabilized as the Spot December contract winds down. The recent decline has halted much of the farmer selling encouraging farmers to carry into next year. Farmer reluctance to sell has jumped the basis to 50 over the March board in Guymon, Oklahoma. Corn is now pricing into rations at $7.00 cwt. in the Oklahoma Panhandle.




For those who live with markets every day, it has been hard to ignore the phenomenal rise of prices in the cryptocurrency BITCOIN. In the year 2010, two years after the internet currency was introduced, it took 10,000 bitcoins to purchase a pizza. Today one bitcoin is worth $17,000. This year the price has risen from $1000 to $17,000. The mania this has produced is otherworldly. Last week, the largest bitcoin dealer reported new accounts opening at the rate of 100,000 a day. Coinbase, the bitcoin exchange, now claims more accounts than eTrade and Charles Schwab combined. The CME and CBOE will open trading in futures and options next week on bitcoin prices cash settled to a blockchain of transactions in the currency.


Many in the cattle business can predict this will end badly for some. It may not happen soon but the risk of hysterical investing is as old as time itself. People are not buying bitcoins for use as a currency but as an investment asset to hold and hoard. This reduces the remaining supply and forces the price higher. The bitcoin market is wild and wooly but the blockchain technology underlying the bitcoins, is rock solid, and will be a major structural feature in many of the daily transactions we complete in the livestock industry every day.






The bottom of the herd cycle saw many feeding operations at low occupancy and others close. The supplies of cattle simply weren't around. Some of the creative attempts to work around the problem by feeding more dairy cattle or even penning up cows attempting to harvest a high dollar calf, failed to provide a workable solution. Work arounds are difficult when the cattle simply aren't there.


Times change and the herd has grown. The short supplies of 2014-15 are gone and larger volumes of cattle are moving through the beef pipeline at every level of production. Double digit placement increases have been reported in most of the monthly reports this year. Cattle feeders have had a good year and beef plants a banner year.


As the year ends the nation's feedyards are full. Dry spots in part of the plains may force some early movements off wheat fields. The feeding capacities are more flexible than beef processing plants. Grow yards can quickly turn into finishing yards. Grow yards also can serve as a proxy for winter grazing by taking the light weight cattle to heavier weights before placing them in finishing facilities.


Before the industry needs to add more finishing capacity, it must first add more processing capacity. The year over year increases in placements will at some point overshoot the ability of packers to find slots for the cattle -- never a good sign for the feeding industry. Feeding capacities and processing capacities require a certain balance for maintaining sustainable margins for both. If feeding capacities are too large relative to processing, packers will keep all the margin as feeders lower prices to bid for kill slots.


The ideal situation is one in which both processing and feeding expand together maintaining the proper balance. This allows the final arbitrator in herd size and industry growth to be driven by beef demand. With all meats production at all time highs, it will be difficult to expand our domestic markets in a significant way either by beef encroaching market share from the other meats or growing all the meats in consumption again in 2018-9. The safety valve and expansion possibilities will be with quality beef for export. The world is a big place and our beef products only reach a few. Fortunately, we are seeing many countries affording to include more meat in their diet as emerging economies grow more prosperous.



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


Australia and Distributed Ledgers


Blockchains and Smart Contracts




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 pounds429.950.72
Estimated Interest(Prime + 1%)30.87 
Current Breakeven1,565.15115.94
Current Futures1,549.13114.75
Net Profit / Loss-16.03-1.19


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 ago1,155.00154.00
Cost of Gain 600 pounds496.920.83
Estimated Interest(Prime + 1%)27.40 
Resulting Breakeven1,679.32124.39
Current Texas Panhandle Cash1,579.91117.03
Net Profit / Loss-99.41-7.36



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