September 19, 2014  






Lean hog futures have joined cattle futures starting Wednesday. Both lean hogs and cattle sold lower but lean hogs are in rally mode and some traders now feel the cattle sell off is overdone. Packer bids for cattle are running $8 cwt. under the current asking prices and the stage is set for another late Friday trading session. Cattle owners are pricing most cattle at $163 live and $253 in the beef.


Box prices are attempting to stabilize and are mixed at week's end. The deterioration in beef cut prices has to date worked into packer margins and slaughter rates are slowing in an attempt to stabilize box prices. Processing margins have been good for the summer and normally narrow into the fall. Choice box prices were quoted at $245 with select at $232 and the spread at $13.


Cheap corn is a strong underpinning to demand for replacement cattle. Some farmers in the midwest will opt for a few cattle rather than selling their grain into a weak corn market. Recent rains stimulated interest in lighter cattle and prices were generally up to $5 higher. Feeder weights are finding good demand as feedlots with empty pens buy into filling them. In the southern plains, a 750# steer brought $229.


Corn prices are leveling out at the current trading level. Corn fundamentals continue to be weak confirmed by USDA's raised yield on the crop report last week. This year should be a record crop and abundant corn harvest is being reported in all areas. Corn basis Guymon, Oklahoma is currently quoted at +$.90 then declining into prime harvest season. Corn is now pricing into rations at $7.75 in the Oklahoma Panhandle.



Number of Cattle on Feed, Placements, Marketings, and Other Disappearance on
1,000+ Capacity Feedlots - United States: September 1, 2013 and 2014
                                        :          Number           :  Percent of 
                  Item                  :---------------------------:             
                                        :                   2013     :    2014     :previous year
                                        :   ---- 1,000 head ----        percent   
On feed August 1 .......................:       10,025         9,837           98     
Placed on feed during August ...........:    1,772         1,720           97     
Fed cattle marketed during August ......:  1,871         1,692           90     
Other disappearance during August ......:      50            66          132     
On feed September 1 ....................:      9,876         9,799           99     



A view of the beef markets, or any markets for that matter, can be a multidirectional one and the various perspectives merge and sometimes diverge leading to the ultimate arbitrator of differences --- price. Our domestic beef market certainly does not behave in a vacuum. Influencing beef demand are many factors and forces, most known but a few unknown. Analysts are constantly reminding us of the importance of job growth, disposable income, inflation and exchange rates.  They all are important but weighing each is frequently difficult.


Few factors are more important than our exports. Exports and imports are driven by the absolute value of our beef products but more importantly by the exchange rates of our currency. The ICE Dollar index, that had stagnated at close to 80 for most of the year, has recently in the past month moved the dollar value upward to 84. Few cattle operators track this index and futures contract but it has a major impact of the volumes of our exports and imports. The rise of the value of the dollar from 80 to 84 is 5%. These means without any change to beef prices our exports are $8 cwt. higher on a live steer selling for $160. Alternatively, our imports are cheaper by 5%.


While those exports of beef products are more expensive, we are finding more demand from more areas of the world. Beef exports for the last reporting month of July were down 14% from prior year.  But the good news is the appearance and increasing demand from sources that will likely chart the future of our export market. Japan continues to be our number one trade partner but in the top five we are finding some new names. Hong Kong comes in at #4 and is demonstrating the largest growth in use of our beef which of course, headed to China. Taiwan is #6 just behind Korea.


The recent change in the dollar is negative for beef prices but other factors are not negative. The economy continues to improve and the jobless rate continues to decline. Today's high priced beef is not eaten only by rich people, it is generally part of every household budget. Since June, a 19% fall in gasoline prices is extremely positive for the food budget and beef.


Beef's relative position to other meats has been surprising to some analysts. Production of pork and poultry is not skyrocketing but is on the increase but beef continues to be a favorite on the supermarket shelf. Demand for ground beef appears to be stable and durable and there is little evidence that turkey burgers are taking market share. Beef will be in short supply for the next year but increasing supplies are on the horizon.



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 Steer1,725.38230.05
Cost of Gain 600 pounds455.170.76
Estimated Interest(Prime + 1%)40.06 
Current Breakeven2,216.12164.16
Current Futures2,154.60159.60
Net Profit / Loss-61.52-4.56


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 ago1,350.00180.00
Cost of Gain 600 pounds530.910.88
Estimated Interest(Prime + 1%)28.22 
Resulting Breakeven1,909.13141.42
Current Texas Panhandle Cash2,173.50161.00
Net Profit / Loss264.3719.58


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