September 29, 2014
CATTLE MARKET REPORT AND ANALYSIS
Certainty is so often overrated.
The hand writing was on the wall. Carcass weights were
increasing indicating some lack of currentness in the fed cattle offerings.
Box beef prices were lackluster suffering declines of $25-35 cwt. or 12%
over the past few weeks. Box prices were down 10 of the last 12 days. Packer
margins were deteriorating and dipping into the red. Into this backdrop
comes trading this past week with all analysts forecasting a $1-2 decline
in fed prices. Problem was things never turn out as expected.
All this past week the October contract had been building
a bottom holding at $155 and refusing to move lower despite heavy selling
pressure. Friday morning the contract broke out to the top side -- eventually
moving limit up. Traders sense that bargaining power is moving back in the
cattle feeders camp with shortened supplies looming soon in the future.
Cattle owners followed the futures by raising asking prices. Packers
resisted raising bids fighting negative margins leaving the entire trade
suspended as of Friday afternoon.
Today buyers and sellers will sort out the implications of
the end of the week surprising bull market. First order of business will be
to profile the activity over the weekend looking for clues to price action
in the cash market. Early this morning there were only a few reports of
dressed sales at $248 or $3 higher than last week and live sales at $159 in
Nebraska with Kansas bids at $2-3 over the October board. Traders also will keep an eye on the reaction of futures
today as well as assessing the magnitude of this week's show list.
Box prices leveled out towards week's end. Stabilizing box prices
is regulated by slaughter volumes. Seasonally those slaughter numbers should
begin to rise with improving fall demand for beef.
Packer margins are seasonal and it is not unusual for a decline in
processing margins to occur in
the fourth quarter of the year. Choice box prices were quoted at $239 with select at $225 and the
spread at $14.
The fall run of calves is dominating the receipts at most
auctions while most yearling cattle were previously sold and remain in short
supply. 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. In the southern plains, a 750# steer brought $230.
Small stories on yield are infiltrating the trade with
stories of extremely high yields in all regions of the country. Corn prices are
soft as the harvest news comes in and the market finds few people willing to
take the long side of the corn market. Harvest pressures are impacting both
the cash price and the basis negatively. This year should be a record crop. Corn basis Guymon, Oklahoma is
currently quoted at +$.90 and declining. Corn is now pricing into rations
at $7.50 in the Oklahoma Panhandle.
TRADING HOURS ON THE CME
A couple months ago the CME released an announcement
informing members the exchange was considering changing the trading hours
for cattle and requesting comments. The comment period is probably closed
but traders might expect some changes in the near future as the exchange
tries to align trading volumes to the hours of the day.
Since the cattle contracts have mainly converted to an
electronic format, there have been times when overnight trading was active
and Asian traders took large positions in cattle or hogs. Asian commercial
interests also have good reason to trade cattle futures in order to offset
risks associated with the raw product that will be setting the price for
beef they intend to purchase in the United States.
Recently, this Asian activity, both speculative and
commercial, has dried up. The impact on the live cattle contract has been to
leave much of the overnight trading largely deficient in volume and when
larger orders are executed the bid/ask spreads are wide and fills poor
leading some traders to abandon overnight trading. This leaves legitimate
traders stuck with the predators who will fill your order but at a horrible
Tennessee Williams, the American playwright, once said
what he liked about New York City was the fact that you were always able to
get a drink -- no matter what time of night. The same can be said for the
availability of overnight trading in the cattle futures, it is some comfort
to some people to open a screen at any time and see quotes.
In the end, nothing much is accomplished by opening the
book of orders and seeing bids to buy and offers to sell of 1s and 2s
scattered over $2 cwt.. It may give some people a power charge to consummate
trades on 20 contracts in the feeder board and move the market $1 cwt.. It
is probably best for a long term viable contract to shorten the hours. More
important to the industry would be the objective of moving the live cattle
contract to a dressed contract for a Choice YG 3 carcass.
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.
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.
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