December 3, 2016 

                    

    CATTLE MARKET REPORT AND ANALYSIS

  
BOC Loan

 

 

PLAINS MARKET TALK

 

Cash Cattle. A more differentiated market developed this week across the plains. Southern plains sales were mostly at $115 live or three dollars higher, while northern sales held mostly steady at $112 live in eastern Nebraska and Iowa/Minn. and $175 dressed. Western Nebraska and Colorado were mainly at $115-115.50 live. The differences were both regional basis differences as well as prices representing the differences in quality and yield expectations for the target pens. At week's end a softer tone in the market reflected declining expectations for next week's cash prices.

 

Cattle Futures. Futures tumbled as traders took a view the recent rally that has taken cash prices from under a dollar to $115 has run out of gas. Technical traders acted on overbought signals. Fundamental analysts also see questions regarding the sustainability of the current cash prices and have faded the futures. The week ends with a price structure reminiscent of summer and early fall markets when the futures lagged the cash by $5-8 dollars. 

 

Carcass weights are released each Thursday and will be a closely watched barometer indicating the position of cattle feeders in the nation's feedlots. The last report released for the week of November 19th, had steer carcass weights flat at 918# but still 5# under prior year.  Last year weather hit feedlots in most areas prior to Christmas, leaving harvest weights sharply lower in the final weeks of the year. The average weights this year are expected to move heavier than last year as excellent feedlot performance pushes weights higher.

 

Forward Cattle Contracts:  Packers bought only for next week and steered clear of forward purchases this week. Futures gave packers little reason to want to forward price any cattle. They will be very interested in forward basis trades off the December and February contracts but sellers will be reluctant to basis trade the heavily discounted futures market.    

 

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. Box prices softened into week's end. The likelihood of beef features this holiday season is high. Retailers can build large margins even at reduced prices and beef cuts sell well for the holidays and especially when prices drop. Middle meats lead the way.

 

The burden of a larger cow slaughter this year has added to the supplies of ground beef and contributed to more tonnage. Breeders will be looking at their bottom line as they make judgments regarding culling cows this fall. Those judgments will likely slow any additional expansion if the fed prices haven't already done that. Heifer placements are increasing in the nation's feedyards. The role of increasing heifer placements is important in assessing the stages of the cattle cycles.  

 

 

 


 
Choice CutoutChoice Price Change
189.72Down $0.79
 
Select CutoutSelect Price Change
172.70Down $0.23
 

 

 

 

 

 

 

 

 

Replacement markets

 

Many stocker operators have recognized the value of patience in purchasing calves for grazing programs. The past two years has evidenced preferential pricing for those who out-waited others in making purchases. Each delay resulted in lower prices. This year when winter grazing opportunities surfaced, many operators decided to wait until late in the year to purchase grazing stock. This year the delay had an unintended consequence. Late year purchases are ramping up prices by $25-30 cwt. taking much needed margins out of the grazing programs.

 

The slowdown in feedlot placements during October have been replaced with brisk placements during November. The low prices of October are gone but the large supplies of feeder cattle remain and will continue to come in the months ahead. Many areas of the country have received needed rain and there will be a good supply of forage for extending grazing periods on winter pasture. 

 

Oklahoma City. Prices for all classes of cattle were spots higher early then mostly steady late.  

 

Feeder futures fell several dollars at week's end as traders look for lower markets for all replacement cattle next week. The January contract pealed $4 off the price in the last two days of the trading week. Lenders have encourage stocker operators to take protection on winter grazing cattle in the spring months and that hedging pressure has held prices discount to the January board.        

 

Feeder Cattle Cash Index. The index will likely move premium to futures.   

 

Forward cattle contracting. Feedlots are not particularly interested in forward contracts for spring thinking they would rather wait than forward price. The basis levels for forward contracted feeder cattle is being lowered by many feeding firms. Basis trades off the forward contracts are quoted  -$2-3 for a 800# steer delivered to the Texas Panhandle in the spring.

 

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

 

Corn futures. Corn and wheat prices regained some early week losses. Corn basis quotes are moving higher at 15 cents over December in Guymon, Oklahoma. Corn is now pricing into rations at $6.30 cwt. in the Oklahoma Panhandle compared to wheat at $6.00 cwt..

 

 

HOW CURRENT ARE THE FEEDYARDS

 

Cattle feeders have enjoyed several consecutive weeks of improving prices and some are expecting the rally to continue but late week futures trading cast doubts on the price direction in year end trading. Futures prices are guesses and they can be wrong just as individual traders can err in their forecast. There are many complex forces at work on the market and little science to be applied to price forecasting.

 

Carcass weights is important in evaluating both currentness of fed offerings and supplies of beef on the market. The last report from November 19th showed average weights for steers 5# under prior year but that is expected to change and weights will likely exceed last year in the next couple weeks. This is not so much related to the current nature of offerings as to excellent feeding weather. There remains and will continue to be more heifers in the slaughter mix tending to reduce total average carcass weights.

 

The quality grade on cattle this year is 1-2% higher grade than last year. This continues a long string of years in which the quality grade has improved each year. This is in part genetics, part heavier cattle placed on feed, and part cattle fed longer. With larger supplies of cattle on hand, and corn prices low, the inclination of feeders is to lower the breakeven by feeding cattle longer.

 

Show list numbers continue to run well above prior year but those numbers are driven by larger monthly placements, year on year, except for the most recent October number. Show lists tend to be noise when taken in isolation. There is little question that the cash trade has been larger for the past few weeks but that does not necessarily mean we are digging into future supplies leaving a gap in the upcoming weeks.

 

Regardless of the current nature of fed offerings, the demand side of the business will determine the future of prices for cattle. Beef features by retailers between now and Christmas will set the stage for beef movement and consumer demand at the stores. There is support for the notion that retailers with generous margins on beef will sponsor specials in the coming weeks and those specials will find good reception among consumers. Winter may not be prime time for beef but a respite from turkey is always welcome.

 

Not to be excluded from the mix is the important but often overlooked factor of the dollar index. Subsequent to Trump's election, the dollar has been in major rally mode as interest rates have posted the largest short term advance in years. An advance in the value of the dollar makes our exports more expensive and our imports cheaper -- not good for beef. It is too early to assess the new administration's trade policy but an isolationist policy would not be good for beef exports.

 

In the final analysis the current nature of fed cattle is assisted and encouraged by a heavily discounted futures board. The need to market cattle now for fear of lower prices in the future is the number one adversary of overfed cattle. Stubbornness and fighting the market also is illogical when the option is to replace with another set of cattle with a still lower breakeven.

 

NOTE TO READERS

 

Sections of the newsletter are redesigned with hyperlinks to the appropriate source pages. The hyperlinks are in light blue within the report.

 

 

 

 

 

 

 

FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE OUT TABLES

 

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 futures contract.

INPUTSTOTAL$$CWT
750 # Feeder Steer935.25124.70
Cost of Gain 600 pounds397.450.66
Estimated Interest(Prime + 1%)25.32 
Current Breakeven1,353.12100.23
Current Futures1,358.10100.60
Net Profit / Loss4.980.37

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.

INPUTSTOTAL$$CWT
750 # Feeder Steer OKC 150 days ago1,110.00148.00
Cost of Gain 600 pounds411.660.69
Estimated Interest(Prime + 1%)24.33 
Resulting Breakeven1,545.99114.52
Current Texas Panhandle Cash1,504.04111.41
Net Profit / Loss-41.96-3.11

 

 

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