PLAINS MARKET TALK
Asking prices were from $165 in the south to higher in the
north. Show lists failed to expand this week leaving many to consider April
fed cattle numbers may remain as small as March. The basis to the spot April
contract is narrowing following a period of exceptionally large premiums for
cash to futures. Historically April is a normal month for seasonal and
annual tops to the cattle market. These are not normal times.
Fed cattle sales last week moved $2-3 higher. Prices
ranged from $161 early to a high in Nebraska and Colorado of $165 late
Friday. Most trades were at $163-$165. Dressed sales were from $258-260.
A mid week spike upward in box prices left traders
wondering whether it was an entirely forced trade following extraordinarily
small slaughter volumes or had demand improved in a spring warm up. The slaughter for last week was 518,000 cattle the lowest
on record for a non holiday week. This week to date is 16,000 head under
that number. Box prices spurted $2-4 higher with the choice cutout at $250 and select at
$246. Choice and
prime now comprise 76% of the nation's fed beef supply -- a record.
Most feedlots made heavy purchases last week of feeder
cattle, both in the spot and forward markets. The rise in prices this week
mostly reflected the higher prices of late last week. A feeder market that
seemed poised to lose 2 as a first number a couple weeks ago, now seems
ready to sustain a $20 cwt. rally. Empty pens in many of the nation's
feedyards are slowly being filled as feedlots gain more confidence in fed
prices. May is expected to hold large supplies of heavy feeder cattle for
placement. A 750# feeder steer was selling for
$217 delivered Guymon Ok..
Corn prices continue to move higher. Most contracts were
trading around the $4/bushel level. Corn acre
estimated to be smaller this spring than last year. The corn
basis in Guymon, Oklahoma is currently quoted at +$.70 over the May
contract. Corn is
now pricing into rations at $8.40 cwt. in the Oklahoma Panhandle.
HOW CURRENT ARE WE?
Several publications have charted the currentness of
feedlots in marketing fed cattle and their analysis, supported by graphs,
indicates a lack of currentness. This assessment conflicts with packer
buyers who are finding very little selling pressure from cattle owners
intending to market cattle each week.
The decision each week on the part of cattle owners starts
with an evaluation of the estimated current weight of pens considered for
sale on a feedlot show list. The feedlot manager assesses current cattle
performance, pen conditions, and individual cattle group expectations based
on history then provides a recommendation to the owner.
There have been several structural changes that have
occurred during this past year. Corn prices have fallen from record highs
during the drought years. Cattle prices reached record highs that are likely
not to be seen again for years and maybe decades. The combination of these
two events caused cattle feeders to seek out heavier marketing weights for
fed cattle in an effort to lower breakevens. Packers welcomed the extra
tonnage and encouraged this behavior by reducing and in some cases
eliminating penalties for heavy carcasses. Feeding cattle to heavier weights
obviously throws more cattle into heavier weight categories. When comparing
weight groups of cattle to prior year, more cattle this year fall into
heavier weight classifications.
Heavier weights do not necessarily mean the industry lacks
currentness, it simply reflects a change in the intended marketing weights.
If feedlots were marketing cattle at 1300# then change to 1400# or 1500#,
this is intentional and does not necessarily cause cattle to be backed up.
The determination of currentness is somewhat arbitrary. It can be defined as
when feeders are able to market cattle at the target weight. If they are
unable, then cattle are backing up.
Many factors impact a cattle owners choice of marketing
dates. Certainly the spot and deferred futures prices influence the decision
whether the owner is hedged or not. Deep discounts in the futures will
encourage cattle owners to sell early. It is obvious that many normally
hedged cattle owners are unhedged and not willing to be influenced by
futures as much as in a normal hedge environment. Some hedged feeders have
covered deeply discounted futures.
Show lists are also becoming less useful in determining
currentness. Analysts check the carryover and compare the show list this
week to prior year and last week. Looking at the show list in Texas is
meaningless. A few hundred cattle more on the show list might increase
offerings 25%. The decline of numbers of cattle offered in the cash markets
harm our ability to evaluate the meaning of show list numbers.
evaluation of currentness is still "does the market go up or go down".
The packers reaction to stubborn sellers and red ink is dark days at the
beef plants and ultimately dark plants. There is always the implied threat
that if sellers will not accept lower prices then packers will shut down the
kill and eventually a plant. Packers like feedlots will not lose money
forever. It is likely there are sufficient cattle on feed currently to
support a higher slaughter rate but beef demand today is the problem.
FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE OUT
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. Currently a typical
bases in the corn belt might be $1 under the futures and alternatively a
corn basis in Hereford, Texas might be $1 over the futures. 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.
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 futures contract.
|750 # Feeder Steer||1,628.63||217.15
|Cost of Gain 600 pounds||488.05||0.81
|Estimated Interest(Prime + 1%)||38.39||
|Net Profit / Loss||-95.56||-7.08
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||1,725.00||230.00
|Cost of Gain 600 pounds||579.14||0.97
|Estimated Interest(Prime + 1%)||35.19||
|Current Texas Panhandle Cash||2,201.31||163.06
|Net Profit / Loss||-138.02||-10.22
Click here to "Check out the markets "
Click Here to send your comments