January 26, 2015  








Both feedyard and stocker operators were dusting off the calculator in order to run the numbers on new prospective purchases of cattle. Current sales of both fed and replacement cattle are dipping into red ink. The overheated feeder market of 150 days ago is still moving higher forcing breakevens on an upward trajectory.  High priced calves bought last summer and fall are also failing to return the investments at these price levels. Graphing the two lines of breakevens and cash prices is getting ugly.


Cattle sold last week mostly at $160 live and $256-7 dressed in all regions of the country. Some Kansas cattle traded $2 over top, effectively pricing the cattle at $162. Late Friday with futures locked limit down, a small volume of cattle sold in the north at $159.


Box prices continued softer in late week trading with boxes losing over $6 this past week. Processors have seen their margin picture change dramatically in the past two weeks providing positive margins and encouraging larger slaughter numbers. Choice box prices fell $2 to $254 with select at $247 and the spread at $7. Seasonally the spread between choice and select narrows in February.


Feeder auctions were lower once again and in Oklahoma City feeder cattle fell another $10 cwt. for the second week in a row. This time they were joined by calves that fell $10-15 cwt.. Feeder futures continue to adjust pricing to a long overheated feeder cattle market. A 750# feeder steer was selling for $205 on the southern plains.


Placements into the nation's feedyards is likely to slow the balance of this month and into February throwing more offerings in the late spring months. The recent fall in prices for feeder cattle and interference from the weather has disrupted cattle movements causing some sellers to hold cattle for later sale and others to take cattle to heavier feeder weights.


Corn prices are weaker as the rise in the dollar has slowed exports and farmer selling has put more corn on the market. There also is some talk of train traffic currently hauling oil from the Dakotas being slowed because of production cutbacks. If these trains are diverted to hauling corn, it may help the basis on the southern plains. The corn basis in Guymon, Oklahoma is currently quoted at +$.60 over the March contract. Corn is now pricing into rations at $7.75 cwt. in the Oklahoma Panhandle.




Number of Cattle on Feed, Placements, Marketings, and Other Disappearance on
1,000+ Capacity Feedlots - United States: January 1, 2014 and 2015
[December preceding year.]
                                        :          Number           :  Percent of 
                  Item                  :---------------------------:             
                                        :               2014     :    2015     :previous year
                                        :   ---- 1,000 head ----        percent   
On feed December 1 .....................:        10,724        10,873          101     
Placed on feed during December .........:    1,679         1,544             92     
Fed cattle marketed during December ....: 1,736         1,655             95     
Other disappearance during December ....:     77              72             94     
On feed January 1 ......................:           10,590        10,690          101     

The limit move in pre-release futures might lead one to believe news had leaked of a large placement number of small marketing numbers but placement fell to 92% well below most guesses prior to the release. The bullish surprise is not likely to reverse the large sell off in cattle futures.





There has been a general and hostile reaction to the crash in the cattle markets, led by futures, but certainly followed by cash markets in fed and replacement cattle.  Whether sourced from hedgers who have been unable or unwilling to protect positions or open operators, the complaint has been a errant futures market that has come uncoupled from market fundamentals. 


In an open letter to commodity and fund managers, one commentator pleaded for reconsideration of an investment opportunity. The commentator insists that no rational humans think that fed cattle can fall as low as the low $140s this summer except for fund managers. He asks them to look at market fundamentals and stop selling and start buying if they are looking to profit.


Other operators in the live cattle sector are pointing to the packers with charges of market manipulation by paying super high prices early this year as a way of tricking futures buyers into longs positions then shorting thousands of contracts in order to drive the market down.


During the past year there were certainly times when futures doubted the sustainability and price level of fed cattle and doubters shorted the markets and suffered the consequences as the fundamentals drove prices higher. The evidence for waning support for fed prices this time is present and material. A runaway dollar is making exports more expensive and imports of beef cheaper. A west coast docks strike has interrupted export flows of beef and resulted in loss of some export sales. And finally, rising supplies of pork and poultry will challenge beef on the grocer's meat counter.


That is not to say the sell off in cattle futures is not overdone. Time will tell. Emotion and exuberance is well known to take markets past reasonable pricing. It is to say that the price movements are not without reason. Competition in the meat sector in general and the beef sector in particular is unlikely to continue at the lofty price levels of the past year.  The quantitative easing occurring on the global front led by the EU, and joined by Canada, Japan and others, will impair our commodity markets as the dollar value thrives amid deterioration in the other currencies.





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. 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.




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 Steer1,586.25211.50
Cost of Gain 600 pounds477.990.80
Estimated Interest(Prime + 1%)37.42 
Current Breakeven2,096.94155.33
Current Futures1,926.86142.73
Net Profit / Loss-170.09-12.60


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 ago1,650.00220.00
Cost of Gain 600 pounds531.400.89
Estimated Interest(Prime + 1%)33.46 
Resulting Breakeven2,214.86164.06
Current Texas Panhandle Cash2,209.28163.65
Net Profit / Loss-5.58-0.41


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