April 18, 2015  

                    

CATTLE MARKET REPORT AND ANALYSIS

 

 

  

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 reporting. 

 

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 the trade:

 

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 delivery.

 

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 TABLES

 

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.

INPUTSTOTAL$$CWT
750 # Feeder Steer1,619.63215.95
Cost of Gain 600 pounds500.730.83
Estimated Interest(Prime + 1%)38.33 
Current Breakeven2,153.75159.54
Current Futures2,041.88151.25
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.

INPUTSTOTAL$$CWT
750 # Feeder Steer OKC 150 days ago1,725.00230.00
Cost of Gain 600 pounds544.090.91
Estimated Interest(Prime + 1%)34.88 
Resulting Breakeven2,303.97170.66
Current Texas Panhandle Cash2,200.50163.00
Net Profit / Loss-103.47-7.66

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