PLAINS MARKET TALK
Cash Cattle. Packers continued to add to inventory late Friday causing
cattle in Nebraska to bring $134-135 and in Kansas $132 with the bulk from
$130-131. Dressed prices in the north were from $212-215. The volumes were
large in all regions although some of the lower priced purchases were for
15-30 day delivery.
Some packers have asked to pull forward purchases made for the April period
into this week's slaughter. Several weeks of purchases, where out front
sales have been large, have positioned packers to use those purchases to
cushion future procurement needs. Offsetting that inventory is the size of
the slaughter that has been working higher. Packers will be assessing the
size of this week's show list in order to determine their needs for next
The political fallout from the failed health care bill moved to financial
and commodity markets Monday. The Dow extended an eight day string of
losses. Some trader are now questioning Trump's ability to push legislation
through the Congress. Positive for the beef business is a steep recent fall
in the value of the dollar making our exports much cheaper and encouraging
more beef purchases from abroad. The market has witnessed sell offs in
livestock, especially lean hogs, the grains, energy and metals.
The big news this past week was the size of the slaughter at 613,000 head.
Packers margins are good and they were busy making hay while the sun shines.
The size of the kill came without crashing the boxed beef market or at least
so far. The increased slaughter number, well above the 538,000 slaughter
last year will keep packers busy replenishing inventory. It may have a
negative impact on the boxed beef market but without a large drop in box
prices, usage of cattle will stay healthy for all parties up and down the
beef chain. The cattle on feed report also confirmed the healthy state of
beef demand and when adjusted for one business less this year, represents an
increase of over 7% more cattle slaughtered this year with a resulting box
price not much changed from prior year.
Cattle Futures. Futures prices were mixed
in late week trading. The spot April contract is transitioning into the
delivery month and lagging the cash by $10-14 depending on what region you
select. June live cattle gained ground on the April this past week. The
steep staircase down for fed prices reflected in futures pricing may be more
dramatic than fundamentals would dictate. The slaughter rate in the coming
weeks will determine how well we can manage larger supplies.
are released each Thursday and will be a closely watched barometer
indicating the position of cattle feeders in the nation's feedlots. The last
released for the week of March 11th, had steer carcass weights moving 5#
higher to 881# remaining 15# under prior year. Heifers were 13# under
Contracts: Most activity in the forward sales has been in the 15-30
day group where large volumes of cattle have traded each week. The past
few weeks have featured from 30-50% of the weekly volume in this forward
pricing group but many of those trades are mixed into the spot prices under
mandatory price reporting. The focus in this week's report was on the May
cattle basis the June board. Early May cattle traded $+8 to the June board
with late May at $+6.
The weekly breakdown of fed cattle moving to the beef processing plants is
as follows. 1) formulas 55%; 2) negotiated 20% [both live and flat dressed]; 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 cutout is toppy both seasonally and fundamentally.
Larger supplies of cattle are ahead with the prospect of lower prices for
retailers. The market for cuts has been strong fueled by healthy demand for
the trim. Much of the Brazilian export market was ground beef and some of
that business may be diverted to the U.S..
The cattle inventory report released the end of
January showed more heifers held for breeding. Nonetheless, heifers are also
increasing in feedyard placement.
The role of increasing heifer placements is important in assessing the
stages of the cattle cycles. Current placements would seem to indicate
the expansion buildup of the national herd is continuing but slowing.
|Choice Cutout||Choice Price Change
|Select Cutout||Select Price Change
Buyers were turning cautious as many have pushed numbers
of purchased cattle during the past two weeks. Many buyers are sensing a
market top on feeder cattle. Movement in the country will slow during April
and then expand for May.
One recent change in the structure of the replacement
market is the basis. February witnessed historically large basis premiums
for yearlings. As futures have run up from the low $120s to the mid $130s
the basis offers on replacement cattle has declined. Basis trades for spring
feeder cattle are returning to a more normalized level based on history.
Oklahoma City. Prices were $1-3 higher as demand is good for
replacement cattle of all classes. Demand for summer grazing will peak
during the next 45 days.
Mid week sale at
were $3-6 higher as the market structure supports higher replacement values.
Feeder futures. Feeder futures have posted $5 gains this past week and
allowed margins for some stocker operations.
Feeder Cattle Cash Index. The index will converge with the futures next
Forward cattle contracting. Pens in many of the feedlots are beginning to
fill as the spring run of feeder cattle off winter grain fields come to
market. The aggressive posture for spring forward contracts is mostly
concluded with interest developing for the summer month placements. Prices
were mostly par to $2 discount to the board for summer on 800# steers delivered to the
Weekly Feeder Summary released on Friday of each week tracks the
national prices by region for last week.
Corn futures. Corn and wheat posted losses for the past week as
rains cross the plains and prepare land with moisture for summer crops. Corn
basis quotes are 30 cents over May in Guymon,
Oklahoma. Corn is now pricing into rations at $6.75
cwt. in the Oklahoma Panhandle.
BRAZILIAN MEAT SCANDAL UPDATE
One week following the raids on Brazilian meat plants, more normalized
operations are returning to the industry. Meat bans placed on Brazilian
meats by various countries have been mostly removed and purchases renewed.
The focus is now on the 21 meat plants targeted for selling tainted meat.
Most countries have prohibited purchases from those 21 plants. Some
countries, with extremely finicky consumers when food safety issues surface,
will remain reluctant consumers.
CATTLE ON FEED
Friday's cattle on feed report offered very little in the way of surprises.
All categories were well with premarket guesses by industry observers. There
is expected to be little reaction in the futures on Monday.
Number of Cattle on Feed, Placements, Marketings, and Other Disappearance on
1,000+ Capacity Feedlots - United States: March 1, 2016 and 2017
: Number : Percent of
: 2016 : 2017 :previous year
: ---- 1,000 head ---- percent
On feed February 1 .....................: 10,709 10,782 101
Placed on feed during February .........: 1,710 1,694 99
Fed cattle marketed during February ....: 1,591 1,648 104
Other disappearance during February ....: 58 56 97
On feed March 1 ........................: 10,770 10,772 100
THE MANY FLAWS OF MANDATORY PRICE REPORTING
There is little disagreement regarding the purpose of USDA
Mandatory Price Reporting. The mission is stated as follows:
The purpose of the program is to
provide marketing information for cattle, swine, lamb, and livestock
products that can be readily understood and utilized by producers. Livestock
Mandatory Reporting encourages competition in the marketplace by vastly
improving price and supply data, bringing transparency, breadth and depth to
market reporting. The program gets its authority through the Livestock
Mandatory Reporting Act of 1999, which must be reauthorized by Congress
every five years.
The point of departure is the delivery of this mission.
The program was established to benefit beef producers – not beef processors.
Beef packers have learned to work with the system and work the system. A
daily look at the various reports leaves mostly misinformation and confusion
among producers. Packers know the market. They test it every day. They know
when they miss a pen of cattle for 30 days forward because a competitor bid
$126 and they bid $125. They know when they miss a pen for next week because
they offered $133 and someone gave $134. They know when they bid +$8 basis
for a pen to deliver in May and topped a competitor who had offered +$6
basis to the June live cattle contract. Producers aren’t so lucky.
These reporting facts and protocols are swallowed up in
strictly regimented rules governing the reporting platform that has failed
to adopt to changing times.
Spot market. The industry
defines the spot market for fed cattle as those cattle purchased this week
for next week’s delivery. USDA allows many of the cattle purchased in the
15-30 time frame to be reported in the daily cash reports. There frequently,
as is the case today, can be dollars difference in the prices. The beef
producers see no differentiation between the $126 price for forward cattle
and the $133 price for next week. They can only guess or rely on word of
mouth about the sales prices.
Over the tops. Packers will
purchase some cattle at .5-$2.00 over the top reported price for a region.
These cattle never find their way into the spot sales reports because they
are designated as “formula sales”. The reality is they are every bit as
relevant as the other cash sales and need to be reported as spot sales.
Formula sales. This is a
broad category of sales that makes up half the weekly sales volumes.
Included in this grouping would be negotiated grid sales, over the tops,
cattle committed to a plant with base from cash sales, and other types of
trades that are derivative in nature. These transactions should all be
converted to a live FOB price at the feedyards and placed into the proper
sales week. Currently, results on formula sales lag the spot market by one
Basis Trades. Basis trades
can occur for any period in time. Cattle owners can sell in the spot market
basis the spot futures month and price during the week prior to slaughter.
They also can select forward weekly periods leading up to the spot month.
Finally, they can forward sell cattle into months and off months basis the
appropriate futures contract. Currently, flat priced forward cattle
contracts are thrown into basis reports and shown as PAR – a totally
incorrect classification that distorts and confuses the market.
Additionally, there is no distinction between dairy and beef cattle on the
basis reports which is wrong.
Referential point for the CME live
cattle contract. The live cattle contract has been robbed of
liquidity due to the fact many traders will not use the contract because
they cannot understand the underlying market or how it works or is reported.
Instead of being a catalyst for clarity, it is a source of confusion.
Correcting the flaws of Mandatory Price Reporting requires
guidance and support from the industry. There is little impetus from sellers
because most sellers think they are getting over the market. They fail to
understand they are getting the market but it is not reported or not
reported properly. There is little interest in change from packers because
they think they are constructing the purchases in a way that controls the
reporting. Traders who avoid the cattle futures because they can’t see or
understand the underlying market, moved on to trade other commodities. This
leaves only the 25% of the cattle owners who trade in the cash market to
complain. The 75% are ignoring the simple fact that better reporting using
modern technologies like block chains, benefits everyone. You may have
cattle that are better than average but how do your prices compare to
another producer with similar cattle selling cattle at another beef plant.
Transparency is a cornerstone of healthy competition.
We welcome your comments on additional thoughts on
mandatory price reporting.
NOTE TO READERS
Sections of the newsletter are redesigned with hyperlinks
to the appropriate source pages. The hyperlinks are in light blue within the
FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE
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.
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
|750 # Feeder Steer||991.13||132.15
|Cost of Gain 600 pounds||424.01||0.71
|Estimated Interest(Prime + 1%)||28.07||
|Net Profit / Loss||-2.26||-0.17
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||1,035.00||138.00
|Cost of Gain 600 pounds||439.33||0.73
|Estimated Interest(Prime + 1%)||24.49||
|Current Texas Panhandle Cash||1,720.31||127.43
|Net Profit / Loss||221.48||16.41
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