September 30, 2016 



BOC Loan





Cash Cattle. Sales this week took the fed prices to new lows for 2016 and prices not seen since 2012. Even with the light trade developing in late week transactions, the sales volumes this week were moderate at best. Live sales were mostly at $103-104 and dressed at $160-163. Many of the forward bought cattle for the October contract are drawing down packer inventories.


Both cattle and hogs are finding production levels are exceeding slaughter capacities. Pork plants killed 2.4 million hogs last week and if that supply should rise to rise to 2.5 million then the industry will lack the capacity to process them. In cattle closed plants during the past two years has resulted in very controlled management of the remaining capacity by the beef processing companies. They hold the keys to the gates.


Cattle Futures. Futures prices were lower with the October contract leading the way suffering triple digit losses. The big news in the futures is the relative price levels of the deferred contracts that now have moved premium to the spot October contract. It is normal for winter months to carry a weather risk premium.  Premium prices will tend to slow the dumping that has been plaguing the industry but it also will contribute to heavier weights and tonnage later with cheap feed the driver.


Carcass weights are released each Thursday and will be a closely watched barometer indicating the position of cattle feeders in the nation's feedlots. The last report released for the week of September 17th, had steer carcass weights up 2# at 905# remaining 18# under last year. Peak weights normally occur in October. The carcass weight remains above the 5 year average and with cheap corn will remain a thorn in the market's side contributing to extra tonnage. The increasing heifer slaughter will positively impact tonnage.


Forward Cattle Contracts: The deferred futures months may not yet be large premiums but the now show premiums to the October spot month contract. Premium based futures are normal for the winter months because they represent a weather risk to producers.      


The weekly breakdown of fed cattle moving to the beef processing plants is as follows. 1) formulas 55%; 2) negotiated 20%; 3) forward contracts 25%. Some of the formula arrangements are week to week negotiated prices and not committed cattle to one plant.


The Cutout. Weakness in the cutout was bound to happen as retailers watch processors purchase cattle $s lower. Ironically while the cash prices and futures were plummeting, box prices were rising but that is not sustainable. Slaughter volumes are expected to reach a yearly high this week with margins huge at the beef plants. Retailers also are participating in the wide margins at the meat counter.


Beef exports have been a bright spot in the market as each reporting period exceeds prior year.  The latest 4 week running average is 29% over prior year for exports. Not only is the export business important for beef but all the other meats. The larger the relief valve of exports is to our burdensome domestic all meat supplies, the less meat on our domestic market.


The lengthy and continuing large cow slaughter will factor into the overall cow numbers in the country and certainly will slow any additional expansion if the fed prices haven't already done that. Heifer placements are increasing in the nation's feedyards. Few operators are seeing a two way option for heifers -- to sell as feeders or breeders.  




Choice CutoutChoice Price Change
189.77Down $0.98
Select CutoutSelect Price Change
178.94Down $1.00









Replacement markets


The replacement market followed the fed market lower. Prices gave up last week's gains and then some. September placements to date have not been large. Stocker operators are not anxious to cash in money losing grazing cattle and forage is good and cattle are gaining and expected to continue until frost. This tends to bunch cattle shipments into October and November. Yearling cattle are in good supply and feedlots are being selective in bids with 800# steers selling in the mid $120s on the southern plains.


Stocker operators are more interested in weaned calves but dealers are more interested in selling unweaned calves. There is an unusually large spread between weaned and unweaned calves and many western ranchers are finding extra value by weaning the calves on site.


Oklahoma City. The OKC auction was $5-10 lower for most replacement classes when compared to last week. Heavier cattle reflect the advantageous gains off this summers grass. Most regions of the southern plains grazing areas are reporting good gains and the cattle on feed report confirms that many of the placements are in the heavy weight classes.


Feeder futures fell in late week trading. The Oct contract now becomes the spot month and the futures are forecasting a large drop in cash prices during the month of October soon to come. Lower cash prices for fed cattle and live cattle futures has discouraged interest in the long side of feeder cattle futures.  


Feeder Cattle Cash Index. The index will start with large premiums to the October board and is expected to move downward as increasing supplies of feeder cattle come to market.  


Forward cattle contracting. Feedlots are not particularly interested in forward contracts for spring thinking they would rather wait than forward price. The basis levels for forward contracted feeder cattle is being lowered by many feeding firms. Basis trades off the forward contracts are quoted  -$2 for a 775# steer delivered to the Texas Panhandle.


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


Corn futures. Corn prices may have found a harvest low and are posting modest gains. Grain elevators are covered up with harvest as open weather in many regions is creating a window for harvesting this year's crop. Corn basis quotes over the December are close to par in Guymon Oklahoma. Corn is now pricing into rations at $5.80 cwt. in the Oklahoma Panhandle compared to wheat at $5.70 cwt.. Many feedlots will be switching back to corn as the harvest is completed.




Almost all participants in the cattle markets agree on the need to reform the live cattle futures contract. In an attempt to sort through the issues involved in changing the contract, we have Frequently Asked Questions posted on the link below that are an attempt to capture many of the diverse opinions on this reform. The Cattle Report welcomes comments from readers.













The reporting of the many transactions occurring every week in the cash cattle markets is in trouble and that is no new news to many operating in that marketplace. While recently we have seen an increase in reportable transactions, much of the current cash market remains opaque – hidden from view from most operators in the arena. We all see and hear reports on the few transactions covered by Mandatory Price Reporting but this is barely sufficient to see and understand the cash markets. Most days there is no trade or at least reported transactions. But behind the scene or screen, trades are occurring with rapid progression for current and future delivery. It takes a lot of pens of cattle to complete a weekly buy of close to half a million cattle.


Packers are not members of the “in the dark” club. They are aware of the many transactions comprising the weekly kill. They are either a party to the transaction or their buyers are aware of which pens sold to which buyers under what type arrangement. They hear each time a competitor purchases a pen of cattle and they understand the terms under which the pen was bought including all the details of the type of purchase, purchase period and price. They know if a pen was purchased by giving a higher base for a negotiated grid or was a forward purchase for some cattle sold basis the futures. They know what it takes to put together an inventory for slaughter needs of the beef plants. They know the many and myriad ways cattle are bought and sold and they are aware of the various purchasing maneuvers designed create a transaction that will not disclose the information to the marketplace – all done without breaking the rules. They know the nature of category into each purchase fits and which will find their way into a mandatory report and how it will be disclosed to the public.


The way most people see the market is still Mandatory price reporting however inadequate it is. They fail to see a dressed flat priced trade where the packer agrees to pay part or all the freight. They don’t see the cash trade that was not for next week but three weeks out. They don’t see the “over the tops” or the protected trades where cattle are purchased for $170 dressed but packers agree to raise the price if other cattle traded above $170. They don’t see the basis trades off the futures that must be priced by Friday for next week’s delivery.


There are more avenues for transferring ownership through multiple pricing mechanisms than ever before.  Some detective work after the fact can give a profile of some of the information but in bulk the data is indecipherable to the marketplace because the marketing periods or price out dates are not clarified in the current reports.


In Australia, Blockchain technologies are being used to parse the many and frequent price points in the Australian wheat market. This has provided important market information to Australian farmers as well as creating a tool for prompt payment. Wheat sales that once took 30 days to settle are now settling shortly following delivery of the wheat. In markets throughout the world, those interested in following cash trades are turning to Blockchains. The CME is joining financial institutions all over the world in investing in the technology and it holds the promise of auditable, stable, and accurate pricing information.






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 Steer1,004.63133.95
Cost of Gain 600 pounds441.130.74
Estimated Interest(Prime + 1%)27.37 
Current Breakeven1,467.69108.72
Current Futures1,354.73100.35
Net Profit / Loss-112.96-8.37


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 ago1,200.00160.00
Cost of Gain 600 pounds457.840.76
Estimated Interest(Prime + 1%)26.43 
Resulting Breakeven1,684.27124.76
Current Texas Panhandle Cash1,443.02106.89
Net Profit / Loss-241.25-17.87



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