October 25, 2016 



BOC Loan





Cash Cattle. The sales in the south never exceeded $100 as packers were able to get by without paying up. Earlier reports were in error and the higher prices only occurred in Nebraska and Colorado were live sales topped at $102. Sharply higher dressed prices also occurred in the north at $160 on Saturday adding an extra day to the trade week. These prices topped mid week live prices at $99 and dressed at $154. The standoff proved sellers could advance the market but they had to say no to lower bids.


The volumes of sales were light leaving both packer inventories light and carryover in the feedyards large. This will make for an interesting face off this week and all eyes will be on the Wednesday fed cattle auction. Observers can watch at https://fedcattleexchange.com


The new online fed auction attracted 14,000 head on Wednesday and represented a sizable and relevant portion of the cash trade. The auction provides a good barometer for cash prices but needs to grow in size to become a real marketplace. Had the same 14,000 head been auctioned off on Friday of this past week, sellers would have been unwilling to accept $99. In order to have a viable cash market the auction needs volumes of 10-15,000 head each Monday/Wednesday and Friday.


Cattle Futures. Monday's futures trading carried forward the advances of the past two sessions. Futures now have added $6 cwt. to last week's mid week quotes. Futures prices may pause and wait for some price confirmation at mid week in the cash markets before moving on.


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 October 8th, had steer carcass weights flat at 911# remaining 17# 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 they are premium to last week's cash. Attracting selling interest into those deferred months means convincing sellers to part with money losing cattle at today's prices and taking a weather risk in the meantime assuming a flat price. Basis trades continue in Jan/Feb at $2 over the board. 


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. The slaughter number for the past two weeks has hovered closely just above 600,000 head. Choice cuts posted gains at week's end and followed through with more gains on Monday. Packers have found a sweet spot in the market that is allowing both to make generous margins handling beef. 


The burden of a larger cow slaughter this year has added to the supplies of ground beef and contributed to more tonnage. Breeders will be looking at their bottom line as they make judgments regarding culling cows this fall. Those judgments will likely slow any additional expansion if the fed prices haven't already done that. Heifer placements are increasing in the nation's feedyards. The role of increasing heifer placements is important in assessing the stages of the cattle cycles.  




Choice CutoutChoice Price Change
179.78Up $1.89
Select CutoutSelect Price Change
166.73Down $1.01









Replacement markets


The new week is bringing on some optimism in a space that has been devoid of that emotion. Higher cash prices and futures are carrying over to the replacement market. Moderated auction numbers also helped contribute to better prices.


Quietly and with little attention has been the growing placement percentage of heifers placed on feed and slaughter each week in the nation's beef plants. This is evidence of the end of the expansion phase of this cattle cycle. Breeders want less heifers held back and those currently selected represent only replacement of culled cows not expansion of the herd. The percent of heifers in the weekly slaughter is 27% this year compared to 24% last year. As the percent of heifers increases, it pulls down beef tonnage because heifers market at lighter weights.


Oklahoma City. The OKC auction was $3-5 higher as feeders digest a bullish cattle on feed report. 


Feeder futures followed higher cash prices and a higher futures board for fed cattle. Prices were quiet in the expiring October contract but the November has now added $6 in short order.     


Feeder Cattle Cash Index. The index is on par with cash prices as the contract winds down to expiration. 


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  -$3 for a 800# steer delivered to the Texas Panhandle in the spring.


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


Corn futures. Corn moved lower in early week trading. The grain prices recently have surprised many by advancing from close to $3 to $3.50 at a time of the year when grain normally falls during harvest. Corn basis quotes over the December are close to par in Guymon Oklahoma. Corn is now pricing into rations at $6.30 cwt. in the Oklahoma Panhandle compared to wheat at $6.00 cwt..




                        U.S. CATTLE ON FEED REPORT
                   IN YARDS WITH MORE THAN 1,000 CAPACITY
                                                  AVERAGE            RANGE
                                   ACTUAL       OF ESTIMATES     OF ESTIMATES
CATTLE ON FEED        October           100            101.1      100.2-102.1
PLACED DURING       September            98            103.3       97.4-108.2
MARKETED DURING     September           105            106.3      105.0-108.8

Placements were 5% under pre-release guesses. This may be a cause for continuing the late week rally in futures prices in the deferred months. Cattle feeders may have slowed their interest in placing money losing cattle on feed.




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.













A weekly slaughter of 650,000 cattle is not unusual judged by any historical standards. The U.S. cattle herd has rapidly expanded, reacting to severe declines in herd numbers caused by drought and low prices, and now must live with the results of a larger national herd. We have created this monster and now must strategically manage our way through it understanding the complex forces at work on beef demand. The Millennials are the new generation of consumers and beef doesn't have the same cache with them as it did with the baby boomers. The approaches to bringing them into desiring beef's prominence at the dinner table will require new ideas.


We currently struggle to hold a steady beef market while slaughtering 600,000 cattle a week and the thought of 650,000 head would send all the beef markets into a tailspin. The role of beef in the eyes of Millennials is not the same as consumers of the past. The media has helped brain wash our young people by scapegoating the beef industry as insensitive to animal welfare, responsible for global warming, damaging our immune systems with disease resistant pathogens and producing an unhealthy product. They portray beef producers as factory farmers only caring about their bottom line with no thought to the consumer.


These are serious charges and must be addressed in order to restore beef's reputation in the marketplace. A response must occur on many fronts. Not only must the response be substantiated with sound science but it must be presented by real live human beings that come across as honest and earnest. The restoration of beef's image is not a PR campaign. It won't be solved with a catchy "whats for dinner?" ad on TV.


The start is with rock solid science done by top universities detailing the importance of beef in any balanced diet. Unfortunately, this work can't be done by Texas A&M or other ag schools because it will be attacked as tainted with conflicts of interest. The science needs to then be disseminated to all education institutions at every level. It must become part of all acquired knowledge by young people working their way through the educational systems of this country.


Next point of sale links need to be established explaining to consumers who produces their beef, how it is produced and how healthfulness and food safety issues are part of the production process. This needs to be done with real people telling real stories to the consumer. The faceless "factory farmer" has cost the industry millions of lost pounds of beef consumption. The delivery of this information needs to incorporate the social media and new technologies available for very little cost to the industry. Bar codes on the packaging should allow a scan by the consumer to pull up a web site telling the consumer all they want or need to know about their beef. Mandatory ID of our cattle herd is a basic need and requirement for winning back the consumer.


The check off dollars for beef promotion can not move down the same path of 25 years ago in reaching the consumer. The plan must be strategic and it must be now.







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 Steer917.48122.33
Cost of Gain 600 pounds396.370.66
Estimated Interest(Prime + 1%)24.92 
Current Breakeven1,333.8898.81
Current Futures1,401.71103.83
Net Profit / Loss67.825.02


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 ago1,110.00148.00
Cost of Gain 600 pounds424.490.71
Estimated Interest(Prime + 1%)24.45 
Resulting Breakeven1,558.94115.48
Current Texas Panhandle Cash1,345.8299.69
Net Profit / Loss-213.13-15.79



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