September 18, 2021









Cash Cattle


Slaughter volume for this week was thought to fall because of the JBS fire but instead reached 660,000 head to allow packers to up the volume over recent weeks and work on the available supply of fed cattle. Cow slaughter continues to outpace last year and working towards a point in time when cattle owners will gain leverage continues to be a week by week testing ground.


Cash market volumes this past week are light and packers will enter next week with diminished inventories, however many express no need for additional cattle and some of this past week's volume were purchased for week after next. Packers purchased cattle in all regions this week at mostly steady prices. 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.


Cattle Futures. Cattle futures were flat for the week following a strong rally on Tuesday then losses in 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.


The hotel/restaurant trade has face a difficult period in providing dining out options to consumers. Covid has been challenging for all businesses but especially restaurants. Closures and re-openings provide a off-again on-again atmosphere but equally challenging has been sourcing food products and menu pricing. Restaurant owners long for more stable prices, a stable work force, and consumers who find value in menu items that are not overpriced.



Choice CutoutChoice Price Change
314.47Down $3.53
Select CutoutSelect Price Change
279.75Down $0.52



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..


The 2021 Corn Crop


The past year has witnessed high volatility in corn prices. Futures prices began in the mid $3/bushel and reached $7/bushel as export news, drought and bullish factors entered the market sending bad news to cattle feeders and good news to farmers. The 2021 crop is nearing completion and USDA released the September crop report Friday with little market moving fanfare.


This report was the first field based yield survey and raised the national estimated corn yield 1.7 bushels to 176 bushels or 4 bushels over last year's crop. This puts the 2021 crop on track to produce over 15 billion bushels of corn a 2% increase over the August crop estimate by USDA and 6% over last year's final crop numbers. Acres were raised to 85 million from previous estimates of 84.5 million acres.


The breakdown by state also set the stage for establishing basis levels for trading in corn. Some of the drought areas like the Dakotas were increased while heartland corn states like Iowa and Nebraska also showing improvements. Texas showed a 13% decline which surprised many analysts.


The assumption that more corn at cheaper prices will lead to lower cattle prices has been the play in the futures market. Large declines in all contract months have been the result of long speculators exiting their positions as the corn crop improves. Little consideration is given to the liquidation currently in progress for the national cattle herd. More corn at cheaper prices may contribute to longer feeding periods but the underlying fundamentals of less available cattle will be difficult to overcome.


Production costs in the feedyard have run cost of gain numbers on cattle closing out this summer and fall to well over $1. Expectations with lower corn prices will reduce forcast gains under $1. Feedyard profitability has been disappointing for two years and changing that condition may not come easy but will be necessary to restoring stability to American beef production.






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 Steer1,161.60149.88
Cost of Gain 600 pounds629.001.05
Estimated Interest(Prime + 1%)30.10 
Current Breakeven1,820.70134.87
Current Futures1,822.50135.00
Net Profit / Loss1.800.13


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 Price1,682.51124.63
Net Profit / Loss-87.67-6.49



Click here to "Check out the markets "
Click Here to send your comments