August 29, 2014
CATTLE MARKET REPORT AND ANALYSIS
Packer bids of $153 were refused and a few cattle were
purchased at $155 yesterday encouraging sellers to hold firm to mostly $156
asking prices. Packers will resist what would amount to a increase of $3 in
cash prices. Futures prices jumped $2 as traders sense the larger looming
supplies of cattle may be a mirage.
For efficient markets to work, futures markets must at
some point converge to cash markets. Often the judgment of a valid and
functioning futures market is how well the future converge at the contracts
termination. This week will witness the expiration of the August live cattle
and feeder cattle contracts. Both contracts are converging to the current
cash prices as designed. The feeder contract is sitting on top of the cash
index. The live cattle are moving towards the last reported cash prices.
The pattern of the next live cattle month [October]
follows the same pattern of all other contracts this year. The next month
out trades at a large discount to the current cash markets. Cash prices have
to date always pulled up the deferred contracts but that is not a rule of
commodity or cattle futures. Cash could move down to match the futures. The
fact that deferred futures are trading at a discount simply means there are
an insufficient number of longs willing to bet on higher prices in the
Box prices weakened into week's end in spite of the
expected smaller slaughter level expected next week. The lower beef prices may encourage retailers to add more features
for the post holiday period which as the weather cools tends to be a good
beef eating period. Choice box prices
were quoted $247 with select at $237 and the spread widened to $10.
Theories of bunched feeder supplies in October have left
many feedyards with empty pens waiting to reload this fall. If those heavier
runs fail to develop, many yards will go into the winter with limited
capacities. The in weights of the cattle on feed report
reflected the fact that feedlots are pulling forward on dwindling supplies
of feeder cattle. The average weight of cattle placed on feed was in
decline. Supplies for current delivery are tight and breakevens for
current purchases are in the mid to high $160s with futures prices in the
$150s. There may be some bunching of
placements in October this year as the summer grazing season concludes.
A 750# feeder steer
was selling for $216 in the southern plains.
The Pro Farm tour is estimating corn yields and those
estimates are higher than USDA estimates.
Some corn harvesting in the south is pushing grain up to the plains feeding
areas. DDGs and other ethanol byproducts are being offered into the market
at favorable pricing for cattle feeders. Corn is offered at $1.10 over the
September contract basis Guymon Oklahoma. Corn is now pricing into rations
at $8.65 in the southern plains.
WTO rules against USDA on COOL
In a decision reported in the WSJ, the World Trade
Organization declined to accept the USDA rules on COOL. The decision
surprised no one and will once again place government officials in an
untenable and embarrassing position of having wasted hundreds of millions of
dollars over a trade policy that the industry and our trade partners
recognized as wrongheaded.
The COOL legislation will always be remembered as a low
point in public policy, combined with legislative jingoism run amok, and
topped off with bureaucratic bumbling that borders on idiocy. The program
has been a nightmare for those compelled to follow the rules and has been a
unnecessary price burden on every consumer who has purchased a piece of
beef. Polls have consistently confirmed that very few consumers ever knew of
the programs existence.
It was initiated by well intended ranchers who sought
recognition for a beef product raised, grown and fed in the United States.
This is all fine but it does not require Congress to pass a law authorizing
it. It simply requires enough product to attract a consumer following and a
processing partner with a label setting forth its advantages and benefits
for the public.
It has resulted in hostile trade retaliation from Mexico
and Canada. Both countries were once primary trade partners on the purchase
of American beef. The COOL rule has stimulated cattle feeding operations in
Mexico by encouraging Mexican ranchers to stay at home and feed their cattle
rather than suffer the large discount in price and export them to the U.S..
This could not have happened at a worse time when U.S. cattle operators need
access to all supplies of replacement cattle.
The decision has not been officially announced but has
crept into the pricing of Mexican cattle over the past two weeks. Feeding
firms with advance knowledge started purchasing Mexican cattle with no COOL
discounts. The decision is expected to be formally announced in September.
Our government would like to delay the announcement past the mid term
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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