SEPTEMBER 3, 2010
Following the purchase of limited amounts of cattle at mid week at $97, packers dropped bids to $96. When they returned to the market yesterday with additional $97 bids, they were unable to find sellers and many sellers repriced cattle at $100. The lower box prices have not developed as anticipated and packers will remain short inventory.
Choice boxes were flat at week's end. The choice/select spread is $6. Choice boxes were quoted at $163 and Select at $157.
Higher grain prices sent feeder cattle lower. September will mark the beginning of increasing placements in the nation's feedyards. Most trade sources expect lower placements when compared to last year as the impact of smaller feeder supplies is realized. Feedlots will be cautious as they assess the grain prices and high priced replacement offerings. Nationwide grazing conditions were good to excellent. A 750# steer was quoted at $113 in the southern plains.
Corn prices flattened at week's end. The December contract is nearing $4.50/bushel. Grain companies are offering corn at 45 over the September contract in the Oklahoma Panhandle. The basis is expected to narrow as we approach harvest. Corn is now pricing into most rations at just under $8.25 cwt.
CORN HARVEST 2010
Corn harvest is just around the corner. The harvest will be earlier than usual caused by hot summer weather and early planting. Good moisture brought the crop along and yields are thought to be very good and the crop is weeks away from completion. Analysts are forecasting a record crop that will be worth $50 billion dollars. The U.S. is the largest grower of corn in the world with over 80 million acres planted. This years crop is expected to be over 13 billion bushels and a record 165 bushel/a. yield.
Gambling on the price of corn is much different from betting on the price of cattle. Corn is fungible and for the most part this country trades in No. 2 yellow corn. The same product is traded region to region and the price is different only by freight cost which is the main determinant of the "basis". Also when the harvest is complete, the quantity of corn does not change. With cattle the amount of beef produced can vary according to how long cattle owners decide to feed their cattle.
This years crop price is higher than last but not anywhere close to the $8 bushel that occurred a couple years ago. The U.S. is the largest exporter of corn and a weak dollar has stimulated corn sales abroad. The Russian drought that caused wheat prices to skyrocket brought corn along to its recent highs.
Ethanol demand has been the most recent change in the demand structure for corn. The ethanol plants are consuming about a quarter to a third of the crop. This provides continuing pressure on corn prices and demand from ethanol will not diminish in 2010-11. Corn use in meat production will likely remain level. Pork and poultry prices fluctuate with corn prices and volumes of animals produced respond quickly to signals from corn prices. Both poultry and pork numbers have decreased but are likely to increase this coming year. Cattle numbers are down and expected to remain low until herd rebuilding starts.
The many corn by-products offered in the marketplace have lessened the value of protein in feed rations. Corn silage becomes less valuable and cattle feeders are finding new interest in corn stover or stubble. Corn use still overwhelms the other feed grains like milo and barley.
A quick drive through the country's heartland quickly reveals the abundant natural resources this country has to offer. This year's crops are abundant and dryland corn and milo frequent the regions of the country that rarely produce a crop because of low rainfall. The scary side of the equation is the possibility or likelihood that one of these years the crop won't make and we will have a serious threat to our food supply.
FEEDER MATRIX
The Cattle Report introduces the FEEDER METER. 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.
TEETER METER
The Cattle Report introduces the TEETER METER. TEETER means to waiver unsteadily as markets will do. 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.
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