August 15, 2018                                  








Cash Cattle.


Expectations entering the week do not always determine the course of the market. Most all analysts called for lower fed prices this week -- some expecting the summer low for the 10th time. Not all cattle owners are willing to compromise price on the fed cattle while they watch box prices move sharply higher.


Show list sizes were little changed from the previous week or the last few weeks -- all close to 280,000 head in the major feeding states. Sales volumes last week were down from the previous week by almost a third. The slaughter this week is expected even larger than last week's 645,000. Box prices are moving higher. These numbers support a higher market but the week is young. Most asking prices moved back to $115.


On this past Friday, the south joined the week long movement towards lower fed prices. Prices for the week sold in a range of $110-112.50 live and $176-179 dressed. The weaker prices were late in the week with mostly $111 in Kansas and Texas. All prices were $2-3 lower. 


Cattle Futures. Futures moved higher as attitudes change about the market direction. The spot August contract is in liquidation mode. 


Carcass weights are released each Thursday and are a closely watched barometer indicating the position of cattle feeders in the nation's feedlots. The last report released for the week of July 28th, had steer carcass weights up 2# at 874# which is 1# under last year. Heifers are 10# over prior year with more heifers in the mix.


Forward Cattle Contracts: Last week forward sales were limited to small bunches of holsteins.  Very few forward contracts are being negotiated with feedyards. This will leave packer inventories short of historical numbers of forward contracts. 


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. Choice cuts moved higher in early week trading indicating a good appetite for beef at the retail level. The first two days of the week has seen the composite move higher by $3. The choice/select spread widened to $9.


The dollar has been quietly moving higher relative to the world currencies. This not only impact beef sales making them more expensive but also makes beef imports cheaper. Australia is currently experiencing a historic drought impacting a large swath of major cattle producing areas. This has created a liquidating herd mode and combined with our own large cow kill, will pressure the grind in the cutout.


Beef Feature Activity Index. Erratic weather patterns across the country contribute to erratic eating patterns. Extreme heat in the west has supported wildfires and drought. In the east, heavy rains have dominated the news. Retailers will prepare for Labor day weekend beef specials and the arrival of cooler more stable weather may increase interest in beef. 


Cutout Values as of Wednesday, August 15, 2018
Choice CutoutChoice Price Change
209.95Up $0.31
Select CutoutSelect Price Change
200.61Down $0.66
Choice/Select Spread


Replacement markets


Increasing numbers of cattle placed on the market are overwhelming the appetite of buyers. The arrival of larger numbers of stocker and feeder cattle to the market is no surprise given the increases reported in the most recent inventory report. Auction barns across the southern areas of the country are reporting large volumes of cattle for sale in most cases exceeding prior year numbers.


Attention will be focused on preparations for winter wheat grazing in the southern plains. Spotty rains have been welcome in many areas and farmers are preparing the fields for planting wheat encouraged by higher wheat prices and grazing possibilities. Stocker operators are accumulating new calves and conditioning them for fall grazing programs. Operators have learned the hard way that weaning calves in late summer is preferred to struggling with health issues in the fall when nights cool and days are hot.


Oklahoma City. Feeder cattle were $1-3 lower and calves $1 lower in early week trading.                 


Feeder futures. Feeder futures recovered on Tuesday.                          


Feeder Cattle Cash Index. Convergence in the August is work in progress.        


Forward cattle contracting. The rising feeder board has many forward buyers widening their basis bids. The basis bids that exist are $3 back for 800# fall steers delivered to the southern plains feedyards. 


National Weekly Feeder Summary released on Friday of each week tracks the national prices by region for last week.   


Grain Futures. Corn prices are finding a trade level and moving within a small trading range. USDA crop production report indicated a bumper crop but we are nearing harvest and many traders will want confirmation before extending positions. The basis is currently at 60 over the September board in Guymon, Oklahoma. Corn is now pricing into rations at $7.50 cwt. in the Oklahoma Panhandle.


Optimism in an Age of Fear  


The beef industry exists in an environment dominated by an aging population. The demographics are not too different from rural America and the entire ag sector. Young people are drawn to urban areas where they believe more opportunity is available. Older people tend to avoid change and long for the nostalgia of the past when their selective memory highlights the successes of years gone past. The current climate in which people fear change is in danger of replacement by a new spirit of optimism.


The current scenario sets the stage for an industry reset -- driven by new blood looking to disrupt an industry mired in the past. A look at the industry disruptions, of the past, reveals only a limited amount of major changes and they occurred at the same time. The two most prominent changes in the past are a change to beef processing occurring 50 years ago. The beef plants moved to locations near the cattle supplies and redesigned plants to marketing beef in primal cuts instead of carcasses. The other change at the same time was in cattle feeding highlighted by the move of commercial feedyards to the southern plains where both cattle and grain are more common.


Kids today are enrolling in classes designed to prepare them for work in a digital age using the internet and the tools to reconfigure how we live our lives in a connected world. From those training grounds of education will emerge new talent but most will head for both coasts of the country trying out new ideas and new approaches to old problems to be the next technology disrupter in the effort to change and improve our lives. The competition is intense and most of those new initiatives will fail.


This sets the stage for contrarians to change course and instead of heading to Silicon Valley where the crowded space is dog eat dog tough, look to the heartland where untold opportunity lies. The beef industry is crying for innovation. In the Internet of Things, almost all trading has moved online. Fees for purchasing stock have dropped from hundreds of dollars to pennies and can be done with a click of the mouse. Houses are viewed online and bought online. Land title is starting to move online where the property is auctioned online and blockchains creating a flawless record of the transaction that is completed by a smart contract. Supply chains link the manufacturer to the consumer in a manner allowing consumer preferences to drive the supply chain.


Now is the time to channel talent into the land of opportunity where it is plowing time again. Ag trading has yet to move online. Ag products are still settled and cleared with checks. The industry leaders haven’t even figured out how to identify their assets [cattle] with unique numbers. New export markets will open with animal ID and old markets will expand. Smart contracts will cover the complex world of export where freight, bills of lading, letters of credit often overly complicate simple buy/sell transactions. Beef plants, that can’t find workers willing to endure backbreaking work, badly need imaging and robotic technologies. Compromised immune systems in cattle are not understood and antibiotics are overused and misapplied. Benchmarking is at the core of good healthy competition but little data sharing exist in the beef chain.


Venture capital investors would have a heyday backing young entrepreneurs innovating in the ag sector. Efficiencies that can provide the foundation for cost elimination and reductions abound through data transfers and sharing. New blood in the industry can both revive and sustain beef production to a position of leadership for center plate status in the critically important task of feeding the world.    






Below are links to articles published in the Cattle Report pertaining to industry change.






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 Steer1,121.25149.50
Cost of Gain 600 pounds464.880.77
Estimated Interest(Prime + 1%)31.57 
Current Breakeven1,611.97119.41
Current Futures1,575.86116.73
Net Profit / Loss-36.12-2.68


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 ago1,125.00150.00
Cost of Gain 600 pounds502.330.84
Estimated Interest(Prime + 1%)26.86 
Resulting Breakeven1,654.19122.53
Current Texas Panhandle Cash1,497.56110.93
Net Profit / Loss-156.64-11.60



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