MAY 13, 2008
Cattle owners were offering only moderate amounts of fed cattle this week -- larger lists in the north and smaller in the south. Several weeks of 700,000/head slaughter rates have worked through some of the front end volume of cattle and carcass weights are showing some signs of failing to exhibit normal seasonal patterns of increases. Cattle owners priced most cattle at $97.
Beef cuts moved higher. Retailers are developing a more aggressive approach to purchases of beef inventories. Retailers are willing to extend commitments and most see beef prices in late summer rising. Choice cuts moved a dollar higher to $157 and select inched up to $152. The spring cook out season is ramping up and beef cuts should sell well for the next few weeks. Some recent purchasing seems to be destined for export to Korea.
Feeder cattle futures, propelled by lower corn prices, led cash prices higher. The cash prices for replacement cattle are squeezing feedlots suffering severe losses on current close outs. The spot May board is expected to converge to the current cash price of around $107 basis a 750# steer in the south. Oklahoma City reported $2-3 higher prices.
Corn futures fell in as farmers work to complete their field work for the 2008 crop. USDA reported a little over half the crop is planted compared to 75% in normal years. Weather is expected to cooperate this week for the final stages of most planting. USDA corn stocks exceeded most guesses but concerns about planting and switching to soybeans kept corn in a bull mode. Current quotes on the southern plains are 50 over the July contract. Corn is now pricing into most rations at $12 cwt..
IN THE NEWS -- COOL
Details of the COOL rules are being negotiated in the farm bill. Cattle to arrive in this country after July 15th of this year will require labeling. Compromise language regarding management of exceptions is unclear at this time.
FOR THE RECORD
OIL REACHED A RECORD $120 A BARREL
CORN REACHES $6 BUSHEL
WHEAT REACHES $25/BUSHEL
NATURAL GAS REACHES $10
GOLD REACHES $1000/OZ.
CATTLE ON FEED -- APRIL 1
Friday's
Average Range
USDA of analysts'
of analysts'
estimates estimates
estimates
On-feed April 1
100.0
101.3 100.4-102.0
Placed in March 89.0
91.9 87.8- 98.0
Marketed in March 100.0
98.0 96.0- 99.4
A DELICATE BALANCE
The knowledge bank for the cattle industry is empty of information for dealing with current conditions. Many disparate theories exist, but everyone agrees that the industry is about to undergo dramatic change. It is the nature of those changes and how they impact the markets that are the great unknown. For example:
Breakeven. The math for calculating a breakeven has never been easier. Take a 750# steer costing $105-110, add feed cost at the same price and add in a few dollars for interest and death loss and you have $110 cwt. Against a $107 October board, the losses will be held to $30, a great improvement from the $200/head currently in place. The unknown is how much beef will be afforded and consumed at $110 for live cattle. Cattle have spiked to this level in the past but current corn prices mean the cost to finish is here to stay.
Quality Grade. The cattle feeding industry has no experience to test how few days on feed will the consumer accept for meat quality. Cattle will be grown to larger weights on pastures and the finishing period will be sharply curtailed. Cattle fed 100 days instead of 200 days will lose finish and produce far less choice carcasses. The spread between choice and select should set new all time highs.
Facility Utilization. As the nation's herd declines and incoming weights increase and days on feed shorten, there will only be a need for 50-75% of the nation's feeding facilities. Over half of the feedyards are currently for sale but there are few buyers and some will close. Size and efficiency will determine who remains.
Feed rations. Distillers grain held the promise of a cheap by product option during a period of high feed costs. It has proven to be an erratic product and cattle performance can often be threatened by inclusion in the ration. Creative alternative feed products will be investigated and used. Hay fields are quickly being plowed under and replaced with corn that can gross $1500 an acre. Least cost rations do not allow many good options.
Economist will differ on how much beef or any other meat will sell at sharply increased prices, but all will agree it will be less. An equally important component will be beef's share of the family budget, which is seeing pressure by inflationary prices on every front. The average family will have less money available for beef even at today's prices. The major disappointment was the failure of the Farm bill to deal with corn based ethanol use and provide some relief to high feed costs.
CHECK OUT THE MARKETS -- new market links
click on "check out the markets" to go to the market page
SEND YOUR COMMENTS to editor@agcenter.com