September 20, 2021









Cash Cattle


Slaughter volume for this past week was expected to fall because of the JBS fire, but instead reached 660,000 head -- one of the largest weeks in recent history. Cow slaughter continues to outpace last year occupying part of the weekly slaughter as we move into fall and culling season for cows. The industry continues working towards a point in time when cattle owners will improve leverage through shorter numbers of fed cattle. More data will be released with the August cattle on feed report soon to be released.


Cash market volumes this past week were light, and packers will enter next week with diminished inventories. However many expressed no need for additional cattle last week and some portion of sales volume were purchased for next week. It would be helpful for government price reporting to provide the week for which cattle are purchased.


Packers purchased cattle in all regions last week at steady to weak prices in the north. There were differences by region. Texas prices were firm at mostly $124 live. Kansas sold cattle $123-124 in equal volumes at each price level. In the north prices were mainly at $125, topping at $127, but narrowing the premium to the southern plains. Dressed prices in the north were mainly at $200 -- $1 weaker than last week.


The northern premium for price has narrowed in the past two weeks. While supplies in each region will always influence the basis for the region, northern cattle grade better and with the outsized spread between choice and select, it would be doubtful the northern markets will find prices falling below the south.


Cattle Futures. Cattle futures were flat for the week following a strong rally on Tuesday then losses in futures contracts the rest of the week. Traders are looking for any indications cattle owners are improving the current status of the nation's fed cattle population.


The always changing conditions in the markets gives rise to new opportunities and strategies. One recent popular strategy is lifting hedges in the current month and moving the position to the next month forward hoping to capture premiums that never seem to develop. This is a strategy that has proven successful and works until it stops working. At some point trade leverage will change and owners will bargain for price improvements, that packer oversized margins will permit, and prices will improve in multiple dollars at a time. It has been a long time since this occurred.    


The Comprehensive Fed Cattle Weekly Report offers the most current information on the current status of fed cattle being harvested. The report is published each Tuesday and includes the previous week's change in carcass weights and quality grading. The latest report shows carcass weights up 8# at 879#. This is 14# under last year. Quality grade grading was up 1% at 81.5%.


Forward Cattle Contracts:  Forward contracts will always bear some relationship to the corresponding futures month closest to the delivery month for the cattle. Basis levels will move up and down as processors want to add to forward contracts or not. Sometimes the forward contracts are associated with forward sales of beef and sometimes not. Packers may simply try to add an extra margin for taking the price risk off the hands of the producer. 


Weekly graphs on the Comprehensive Weekly Fed Cattle Report break down the categories of trade for the week according to 1) formula cattle; 2) negotiated live; 3) negotiated dressed; 4) and forward contracts. Some cattle included in the formula category are week to week negotiated grids and not committed cattle to one plant. Other cattle designated as formula are "over the tops" where packers purchase cattle at $1-2 over the highest price paid in any given region.


The Cutout. The downward track of box prices continued and is expected to continue next week. This is not bearish or bullish but a necessary adjustment to return beef prices to a more palatable level for consumers and export markets. This trend is likely to continue until the holiday buying kicks in the fall and early winter.


Quality grade is becoming a looming and influential factor is determining final price for live cattle. Whether those cattle are marketed live weight, grid or formula, the final price outcome will be strongly related to quality grade. Currently the spread between choice and select is ranging between $30-40 cwt. as compared to $10 cwt. a year ago. This translates into a value proposition of $350/head difference this year compared to $90/head last year.



Choice CutoutChoice Price Change
315.66Up $1.19
Select CutoutSelect Price Change
280.75Up $1.00



Beef Feature Activity Index. The surge in box prices might damper some planned fall special offerings of beef. Extreme price fluctuations to the upside discourage beef specials because sticker shock makes it difficult to convince consumers of a bargain on the meat counter. It also is difficult for beef retailers to build a profit on beef sales when prices are hitting a new top each week.



Replacement markets


Pasture gains for much of the southern plains will be good and many cattle will move to the feedyard with heavy weights. Feedyard placements are returning to a more normalized level in August. There remains a smaller replacement pool of cattle to draw on for future placements and feedlots will compete for dwindling supplies leaving some pens empty this fall. Some midwest farmers may choose to sell corn and leave the feeding of cattle to someone else.


Hedging margins that were quite negative earlier this year have turned positive. Many of the feeding companies that rely on this margins filled their pens in August. The same forces that threatened hedging margins earlier in the year are now aligning with the improvements including falling grain prices and falling feeder prices.


Disappointment in fed cattle cash prices and slaughter numbers has impacted stocker and feeder prices at a time of year when runs are heavy and marketings plentiful. Feeder futures have pulled dollars off the price levels and this week is expected to find the cash markets for replacement cattle weak.


Oklahoma City. -- Prices fell with the recent news on all classes of cattle. Feeder cattle were $5-8 lower and calf prices $8-10 lower in a game changing week.


OKC West  -- Light receipts and a weak undertone.


Feeder Cattle Futures. Futures fell with higher grain prices.


Feeder Cattle Cash Index. The index is tracking the moves in cash prices.   


Forward cattle contracting. The gap between current cash prices and expected premiums in the futures market has narrowed. The premiums built into deferred feeder futures have largely been realized. The many video auctions of late summer and fall will market many of the nation's cattle. Both calves and yearlings will be on offer for fall in the upcoming weeks.


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


Grain Futures. Corn futures leveled out after finding support around $5. Harvest is underway on the southern plains.


Basis levels are weakening for both old crop and the new crop. Grain elevators also are lowering basis offers to farmers for new crop corn. Hot weather in the southern plains will begin the harvest in the Texas Panhandle soon. Corn basis prices at Guymon, Oklahoma are $1.00 over December futures for late September delivery. Late September/Early October are 70 over Dec..






Fall is the time of your when most breeders market the annual crop of calves. The historical and traditional manner of marketing has changed for many breeders through thoughtful application of several guiding principles.


   ·         Marketing channel. This can be a direct relationship with a buyer who has provided a competitive price year after year, or this may be a marketplace where multiple buyers bid for best price on the calf crop. Choosing the right time at the right price can often be simply trying to outguess the market and a more carefully reasoned approach is a basis trade allowing the breeder to price the calf crop at regular intervals without trying to outguess the market. Some breeders also might create more marketing periods by staging fall calving and spring calving with alternative breeding periods.

·         Get Paid for your Genetics. Genetics provide benefits to the breeder in weaning weights and cow maintenance costs. The greater benefit is after the cattle are sold and to the forward ownership of the animal in the beef pipeline. The challenge for the Breeder is to receive payment for those future benefits now or to continue some level of equity ownership in the animal through the beef pipeline. The one certain path to consistent higher prices is identifiable data to support the future benefits. This proof can only come with digital animal Identification and sharing of data supporting future performance both in the feedlot and the beef plant. ·         Herd Heath. Preconditioning is a requisite for higher prices. This regime may vary from herd to herd and location to location, but it must promise and delivery animals free of “luck of the dice” outcomes. The breeder must stay in constant contact with the buyer and tweak the individual program to fit the buyer’s need for animal health and reliability on health representations.

·         Enter into a Branded Program. Initiating or negotiating an arrangement to be part of a larger beef branding effort is the goal of all well-run operations. The consumer is willing to pay for more knowledge about the source and quality of the product they are purchasing. Being part of a supply chain providing consumers with a quality and data confirmed in a blockchain is the future of successful breeding.  


The future will find more breeders entering supply chain relationships. The structure of these arrangements is difficult, with each sector attempting to control the structure of the arrangement, and each sector vying for the margins available from the added value. Pricing at each transfer point, assigning obligations of the parties, and properly assessing each party’s contribution must be negotiated as well as the contract governing the final step to the consumer. The reward is consumer acceptance with returning and growing use of the branded product.







Below are links to articles published in the Cattle Report pertaining to industry change. Two important changes are on the table for progress -- supply chain management and animal ID. Both applications will transform and disrupt the industry.






The Case for National ID for Cattle


Reforming the Futures Contract and Cash Trading of Cattle





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 Steer1,162.50150.00
Cost of Gain 600 pounds629.011.05
Estimated Interest(Prime + 1%)30.12 
Current Breakeven1,821.63134.94
Current Futures1,821.56134.93
Net Profit / Loss-0.08-0.01


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 ago1,035.00138.00
Cost of Gain 600 pounds710.891.18
Estimated Interest(Prime + 1%)24.29 
Resulting Breakeven1,770.18131.12
Current 5 Area Weighted Average Price1,673.87123.99
Net Profit / Loss-96.31-7.13



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