March 6, 2014
CATTLE MARKET REPORT AND ANALYSIS
Both cattle and hogs had a wild day on Wednesday. Anytime
commodities shoot either direction in a rapid pace, traders become nervous.
Volatility creates volatility. Traders start trying to guess the tops or
bottoms and few are prescient enough to handle the task. Trading ranges were
$4-5 cwt. on both hogs and cattle. Cattle closed $2 lower after trading
limit down. Packers tried to take advantage of the selloff and bid $148 on
cattle in the southern plains. A few pens of sub par cattle traded at $148
but most owners passed. In the north several thousand cattle sold steady at
$240 in the beef or a $152 equivalent.
Box prices continued higher at mid week. Many retailers
will be looking
at the deferred summer futures as pricing opportunities at prices far under
the current levels. Much of the rise in the June futures was
retail beef users forward purchasing live cattle futures or processors
protecting a forward sale. Choice box prices
were $2 higher at $234 and select up to $232. The weekly comprehensive
cutout continues to reflect less severe price moves both up and down than
reported in the USDA daily report.
A small group of high quality stocker calves sold last
week at an auction in Nebraska and received little attention. To those in
the business of purchasing grazing animals for this summer, the transaction
deserved some special attention. The package of steers weighed 426# and
brought $301. When the grazer has added 350# to those steers and they weigh
just under 800#, they will need to sell next fall for just short of $200.
The feeder cattle index has been moving higher. Traders
will watch developments this month in placements to compare with the large
placement numbers March and April of last year. Should placement reach last
year's numbers, the next direction in feeder prices might be down. Winter
weather has caused choppy placement patterns since the beginning of the year.
Oklahoma City reported 2000 cattle for the auction when compared to a more
normalized 10,000 this time of year. Movements of feeder cattle north and
south were delayed and cancelled. Prices for a 750# steer were close to $172
on March 1st.
Ukraine is a large exporter of both wheat and corn and the
corn futures have been jumping higher as uncertainty invades future exports
from that troubled country. The prospect of war always is bullish for commodities.
Moreover, traders will watch
as planting intentions are disclosed in the coming weeks.
The basis is 65 cents
over March corn for Guymon
Oklahoma. Corn is pricing into most rations at $9.50
cwt. in the southern plains.
WHEN YOUR TRADE INFORMATION IS MY TRADE INFORMATION
Mandatory price reporting has a noble objective. It
requires disclosure of trade information on the many thousands of pens of
cattle traded each week for market reporting purposes. The intent is to
provide producers and processors with timely information on market
conditions allowing the industry to see the market and be able to benchmark
their own marketing program to the industry. All of this is suppose to be
accomplished without compromising individual trades or the parties to the
marketplace. The reporting is subject to audit and violations of reporting
subject to fines.
Industry participants viewing the government reports
complain the cash markets are broken. They cite the fact that the number of
transactions is in serious decline and in some cases there is no longer any
cash market. These folks miss the mark. There are cash trades occurring
every day in every region of the country. They simply are not being
reported. Cattle are trading basis the futures, $ over top, negotiated
grids, and many other methods of selling cattle. They aren't reported
because in each instance the processor with the willing participation of the
sellers are calling the trades 1) forward contracts; or 2) formulas. This
throws the transactions into never never land of indecipherable information.
At the core of the issue is a basic contract right.
Individuals and firms have a contractual right to deal with each other in a
manner protecting price disclosure of individual transactions. I don't have
a legal right to know your private price point on a group of cattle. We all
would like to have the other's pricing but unless cattle sell in public
auctions, it is not going to happen. Parties will always work around
government mandates on price reporting to circumvent disclosure through
legal loopholes and it is unrealistic to believe USDA will react quick
enough to discover and correct the loopholes.
Cash sellers have for years complained about carrying the
burden of price discovery for the formula sellers. In recent times, some
have felt payback time as lower quality cattle or Mexicans are sold on cash
markets and premium offerings sold $ over top or basis futures or negotiated
grids. Formula sellers are moving away from pricing off the unreliable
reported cash markets and trending more towards futures related basis
pricing. All of the various pricing mechanisms have left only a few people
to complain about the market because most sellers believe they are getting
premiums to the reported market.
Associations frequently try to fill in the gaps on
reporting by covering sales in their areas. These efforts have no teeth or
audit authorities. The rumor mill is another constant source of market
information but it is full of more misinformation that good information.
Frequently, it is based more on bragging rights than actual facts.
Remember the farmer who just harvested 300 bushel corn, but failed to
mention it was really just on the best 30 acres on his best circle.
One likely future development is online auctions for fed
cattle allowing groups to be offered in live auctions on regularly scheduled
sales. Cattle could be offered for current and future delivery and the sales
would be transparent to all. Futures prices are becoming the more popular
pathway for pricing because the trade volumes are large and futures trade
almost around the clock. Once the parties can agree on a basis, each party
is responsible for choosing their own time for pricing. It has worked for
years in the grain markets.
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.
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.
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