October 22, 2017. 

                    

 CATTLE MARKET REPORT AND ANALYSIS

  
BOC Loan

 

PLAINS MARKET TALK

 

 

 

Cash Cattle.

 

Packers were unable to put together an inventory for next week's slaughter needs without raising prices to $111. Stength in the box prices towards the end of last week and the shortfall in inventory from the limited volume of $110 purchases, forced the market back to steady prices on cash cattle. Dressed prices also moved higher to mostly $175 - also steady with the previous week. Many of the consummated transactions occurred following an unfriendly cattle on feed report.

 

Many cattle being held past the termination of the October contract that will occur this week. Cattle owners will expect to capitalize on the premiums that are built into the December contract that closed Friday with a $5 premium to current cash prices. Holding heavy cattle poses a weather risk for feedlots carrying cattle into unpredictable winter weather where performance losses can more than offset price gains.

 

The cash market is in need of more delineation of the transactions themselves as well as improved descriptions of the cattle traded.  For example, most transactions based off dressed carcass prices for cattle are quoted with cattle owners responsible for freight delivery to the plant. Some transactions, however are picked up at the feedyard with packer paying the freight or sellers are allowed a freight allowance. Cattle that sold early last week may have been half brahma, or Mexican cattle or any other types of second cut cattle. Cattle owners with sub-standard cattle will be the first to sell at lower prices and packers will not inform the world of the quality, they will characterize the purchase as a falling market. You can bet that packers purchasing cash cattle for mid November delivery off the December board will not be reported in the cash markets. Several months ago, with a discounted futures board, forward cattle were continuously reported. Imposing trade standards would go a long way towards delivering better market information into the market.

 

Cattle Futures. Futures firmed with the strength in cash 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 weekly reports will bear more scrutiny than usual as this years carcass weight approach last year's number. The last report released for the week of October 7th, had steer carcass weights were up one pound at 895# which is 16# under prior year. Heifers were only 16# under last year. Carcass weights normally top in October but reached their peak in November last year. Weather is the determinative factor in seasonal fluctuations as well as the status of the December futures contract. Premiums to cash in Decemeber will encourage more holding and heavier weights later in the year.

 

Forward Cattle Contracts: Highlights of last week's forward contracts were 15,000 December cattle at Par the board. Additionally, 9000 February cattle were sold Par the Feb board.     

 

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. Box prices were higher at week's end. Packers moved the slaughter volumes higher this past week to 632,000 or 10,000 higher than the previous week. Beef demand remains healthy and export markets are handling volumes well above last year.

 

One of the positive aspects of more cattle and more beef to sell is the comfort level of retailers. They now are able to plan and execute beef features well in advance knowing the supplies will be available. This allows retailers to plan more strategically and well in advance of running beef specials. The frequency of "specials" or "features" for beef have increased as the supplies have grown.

 

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.

 

Choice CutoutChoice Price Change
197.40Up $0.18
Select CutoutSelect Price Change
190.02Up $2.79
Choice/Select Spread
7.38

Replacement markets

 

There is a soft undertone to the replacement market as shipments enter prime time. Buyers are differentiating between yearlings and long weaned calves in the marketplace. The dollars of premiums paid for straight cattle can pay large dividends this time of year. Increasing health problems are surfacing across the plains aided and encouraged by rain, cold nights, and warm days. Sickness that has been mostly normal in late summer is turning problematic in the fall weather.

 

Filling feedyards across the plains is limiting the number of buyers in the country trade for yearling cattle. Basis trades are widening as stocker operators move cattle off lush summer grass fields and head to market. October is turning out to be a surprisingly strong stocker and feeder market with prices rising instead of a more normalized fall as summer grass cattle move to market. 

 

Oklahoma City. All classes of cattle were weak this week. Cattle movements are increasing with both the OKC and OKC West auctions receiving heavy runs.  

 

Feeder futures. Feeder futures were mixed.    

 

Feeder Cattle Cash Index. The index is entering the final stages of settlement and will closely track cash. We are approaching the heaviest marketing month for the year and seasonally the lowest feeder price point historically.     

 

Forward cattle contracting. Feedlots are featuring out front purchases for March through May at discounts to the board prices varying from Par to $5 under depending on location and delivery point.  

 

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

 

Corn futures. Corn prices fell at week's end as harvest pressures weighed on the market. Corn usage has unwhelmed the expectations mainly because some feedyards are purchasing and feeding wheat in their rations. Wheat also fell in late week trading. The current basis is 50 cents in Guymon, Oklahoma. Corn is now pricing into rations at $7.00 cwt. in the Oklahoma Panhandle.

 

 

 

CATTLE ON FEED

 

 

United States Cattle on Feed Up 5 Percent

Cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.8 million head on October 1, 2017. The inventory was 5 percent above October 1, 2016. The
inventory included 6.93 million steers and steer calves, up 2 percent from the previous year. This group accounted for 64 percent of the total inventory. Heifers and heifer calves accounted for 3.88 million head, up 13 percent from 2016.

Placements in feedlots during September totaled 2.15 million head, 13 percent above 2016. Net placements were 2.09 million head. During September, placements of cattle and calves weighing less than 600 pounds were 405,000 head, 600-699 pounds were 340,000 head, 700-799 pounds were 490,000 head, 800-899 pounds were 515,000 head, 900-999 pounds were 285,000 head, and 1,000 pounds and greater were 115,000 head.

Marketings of fed cattle during September totaled 1.78 million head, 3 percent above 2016.

Other disappearance totaled 58,000 head during September, 38 percent above 2016.

Number of Cattle on Feed, Placements, Marketings, and Other Disappearance on 1,000+ Capacity Feedlots - United States: October 1, 2016 and 2017
-----------------------------------------------------------------------------------
                                        :          Number           :  Percent of 
                  Item                  :---------------------------:             
                                        :    2016     :    2017     :previous year
-----------------------------------------------------------------------------------
                                        :   ---- 1,000 head ----        percent   
                                        :                                         
On feed September 1 ....................:       10,135        10,504          104     
Placed on feed during September ........:     1,895         2,150          113     
Fed cattle marketed during September ...:   1,732         1,783          103     
Other disappearance during September ...:        42            58          138     
On feed October 1 ......................:         10,256        10,813          105     

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CATTLE ON FEED COMMENTS

 

Friday's monthly Cattle on Feed report once again surprised those analysts making pre-release guesses. Placements exceeded prior year by double digits -- promising to test both the ability of slaughter plants to process the cattle and the zest of the American consumer to ratchet up meat consumption. Export markets can serve as a safety valve for excess supplies of beef but within limits and those markets are fickle and subject to change from outside forces such as foreign competition and the value of the dollar. 

 

Critical in the markets ability to absorb increasing numbers of fed cattle will be carcass weights. No one knows the winter that is in front of us. Most forecast are for warmer than normal temperatures but many fortunes have been lost on "most forecasters". Processors hold the key to the gate and there appears to be very little movement within the processing industry to open up new facilities or reactivate old ones. The only way cattle feeders will be able to share in the ever widening margins at the beef plants is through increased competition for slaughter slots.

 

 

PROTECT MY RIGHT TO DISCRIMINATE

 

USDA announced plans last Tuesday to withdraw the Grain Inspection, Packers and Stockyards Act (GIPSA) interim final anti-competition rule and take no further action on the rule imposed during the last days of the Obama administration. President Obama was never known for understanding business or business practices and this move will be welcomed by most but not all beef producers. A true free market provides both buyer and seller the right to chose who to trade with and at what price. Any effort to force or compel trades or prices is an insult to our business.

 

There is and has always been a segment of our beef producers who believe market forces are conspiring and subverting their efforts to obtain best price for their cattle. The remedy, according to some, is litigation. The Obama rule would have made it much easier to bring lawsuits causing a flood of controversies in which producers, who believe they were not paid fair market prices, could sue for redress. Producers who believe they are not paid the same as a neighbor with the same type cattle would seek compensation in court. Of course, all of us believe we frequently are not paid enough for our cattle but the solution is not a lawsuit.

 

There will never be fair pricing in some eyes because there are too many variables in cattle procurement. You have differences in quality, flesh, genetics, freight caused by location, breed profile, weighing condition and more. Buyers and sellers can argue to the end of time about distinctions and variances that affect value, and in the final analysis, the only leveling force in compelling fair market is competition.

 

Even supportable arguments are valid regarding an evaluation of the people involved in a transaction with no regard to the cattle. Some people have established long time reputations of honorable dealings and deserve recognition in the form of price. Some people are easy to trade --- no matter how tough they trade. Others are never happy and constant complainers. A skilled negotiator will generally obtain a preferred price to a novice seller. Much of success and satisfaction with a buy/sell transaction is in the mind of the parties and not the quality of the cattle.

 

Sustainable relationships count in the beef business. Both buyers and sellers can find comfort in continuing relations and price points reached at various periods during the year. Certainly a beef processor would give consideration to someone delivering desirable cattle at the rate of 100 head per week, year around, over the same quality cattle delivered once or twice a year. A regular supply of similar type cattle is the basis on which retail customers are served best with a replicable product -- providing consumers with the same eating experience from the same meat counter over and over.

 

It is fruitless to litigate over whether one seller received the same price as another seller on the same market. There is behind every purchase the desire on the part of the buyer to find the best price. The beef packer this past week bought all the cattle possible at $110 before determining they had insufficient inventories and were forced to raise bids to $111. This publication believes in the right of a buyer to pass a seller’s offer of cattle because they don’t like the brand of pickup the cattle owner drives. Of course, eventually if the buyer makes decisions based on the pickup brand, chances are good they will go out of business.

 

 

 

CATTLE REPORT LIBRARY

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

 

NOTE TO READERS

 

Sections of the newsletter are redesigned with hyperlinks to the appropriate source pages. The hyperlinks are in light blue within the report.

 

 

 

 

FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE OUT TABLES

 

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. 

 

 

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 Steer1,151.25153.50
Cost of Gain 600 pounds438.060.73
Estimated Interest(Prime + 1%)31.93 
Current Breakeven1,615.84119.69
Current Futures1,639.31121.43
Net Profit / Loss23.461.74

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 ago1,125.00150.00
Cost of Gain 600 pounds494.840.82
Estimated Interest(Prime + 1%)26.79 
Resulting Breakeven1,646.63121.97
Current Texas Panhandle Cash1,498.91111.03
Net Profit / Loss-147.73-10.94

 

 

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