PLAINS MARKET TALK
U.S. CATTLE ON FEED ESTIMATES
IN YARDS WITH MORE THAN 1,000 CAPACITY
ACTUAL OF ESTIMATES OF ESTIMATES
CATTLE ON FEED May 101 101.7 101.0-102.4
PLACED DURING April 95 102.4 97.4-105.5
MARKETED DURING April 92 92.4 91.7-94.0
An early release of the COF report has some puzzled for
the second month by placements missing pre-release targets by 5% or more. It
is almost like some numbers were crossed between March and April placements.
Trading is mostly concluded for the week with short bought
packers having to push the market at mid week. It was mostly a steady affair
with prices ranging from $160-$163 live and $251-253 dressed. Packers also
purchased additional cattle into June at $160.
Box prices weakened in anticipation of a larger slaughter
number this week. Most cuts lost $2-3. The period from now until July 4th is prime time for beef demand. The
cutout set another all time high this week contrasting with live prices remaining a good
$10 cwt. under the all time high. Choice cuts were at $262 and select at $249. The choice/select spread is
The May contract expired with little attention. Feeder cattle supplies remain tight as breeders capture
many of the heifer yearlings for calf production aided by generous rains
across the plains. Rains also have slowed movement of cattle off winter
grazing locations and diminished auction receipts. Oklahoma City had smaller
receipts as stocker operators struggled to get into wet fields. Prices were
quoted at $3 higher or yearlings. A 750 steer on the southern plains was selling for $220.
Corn turned back higher with the additional rains. Cold weather concerns were dismissed as traders get back to the
fundamentals of a good start to this year's corn crop.
basis in Guymon, Oklahoma is currently quoted at +$.60 over the July
contract. Corn is
now pricing into rations at $7.75 cwt. in the Oklahoma Panhandle.
COOL APPEAL DENIED
USDA suffered another defeat by the World Trade
Organization as its final appeal of the COOL law was refused giving Mexico
and Canada the ability to place retaliatory measures in place to compensate
for the now illegal trade law. The COOL law is an example of an ill
conceived plan, hastily drafted, passed without thoughtful consideration and
in the end benefiting no one.
The COOL story is really a sad commentary on NCBA and its
lobbying ability. The national cattle organization failed its membership and
the entire industry. The legislation combined with rulemaking by USDA
burdened the producers and processors with hundreds of millions of dollars
of additional cost with full knowledge the consumer doesn't know or care
about the country of origin.
It is unfair and irresponsible to blame the problem on a
small group of jingoistic cattle folks who honestly believe segregating and
marketing USA beef will be a benefit. The industry should have enough
clout to have stopped it. It has caused more cattle to be fed in Mexico and
cost our beef business many lost exports and needed imports of stocker
THE DEMAND PICTURE
It is not easy to define the demand side of the beef
equation. Many consumers confuse the consumption of beef with demand for
beef. Everyone agrees with the data evidencing the decline in beef
production and if you produce less beef, consumption will decline. Some
analysts incorrectly point out that consumers are turning away from beef
during the past couple of years pointing to evidence of declining
The fact is beef demand has remained quite good in the
face of declining production and sky high prices. Consumers are spending
increasing amounts of their household budget on beef but beef is remaining
in the diet -- although in decline quantities. Even beef exports are
sustaining good demand during this period of production even though the
volumes are smaller.
The source of declining production of beef is part of a
cycle and has multiple causes. One cause is changing consumer attitudes
towards beef. This can be a health threatening food scare like mad cow or
ecoli or a health trend like the cholesterol scare of the 1980s. Another
cause is overproduction resulting in too much beef at prices too low to
return a profit to producers. The last cattle cycle was neither of these
causes but instead was an uncontrollable cause, it was a weather related
event. Droughts have always been around and always will be part of our
existence on the planet earth.
Beef production is built on these cycles. The multiyear
drought severely restricted breeding and caused many disruptions to normal
consumer use of beef. It also caused structural changes to the beef chain.
Many fast food restaurants were forced to change their menus and offer more
diversified meat offerings -- the advent of the turkey burger and other
non-beef offerings. Grocery chains reallocated shelf space and changed from
frequent beef features.
USDA revised its production forecast for 2015 and is
expecting slightly more beef produced than 2014. In spite of increased
carcass weights running 3% over prior year, the first half of the year will
feature a decline in production. If we produce more beef this year than
last, it will happen in the second half of this year and given the optimum
pasture conditions it is unlikely cattle will be pushed off pastures into
the feedyards anytime soon.
All of this can change once again as the beef production
cycle shows the strength of the industry. Beneficial rains across the plains
have made possible rebuilding of the herds and they are responding in record
speeds spurred on by sky high prices for calves. As production increases and
prices fall, the marketing chain will seek out ways to win back consumers to
the new increases in supply of beef.
FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE OUT
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.
|750 # Feeder Steer||1,652.25||220.30
|Cost of Gain 600 pounds||482.83||0.80
|Estimated Interest(Prime + 1%)||38.83||
|Net Profit / Loss||-86.77||-6.43
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.
|750 # Feeder Steer OKC 150 days ago||1,725.00||230.00
|Cost of Gain 600 pounds||550.67||0.92
|Estimated Interest(Prime + 1%)||34.94||
|Current Texas Panhandle Cash||2,171.61||160.86
|Net Profit / Loss||-139.00||-10.30
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