May 18, 2013
CATTLE MARKET REPORT AND ANALYSIS
CATTLE ON FEED
2013 2012 estimated
of analysts' of analysts'
% of prev yr estimates estimates
On-feed May 1 10.735M 11.110M
Placed in April 1.750M
Marketed in April 1.855M 1.815M
Cattle on feed numbers were slightly off from forecast
with placements 3% over average guesses and on feed .7% higher than average
guesses. The report is expected to have little impact on futures next week.
Futures traders expecting a bearish report sold both feeder and live cattle
futures lower prior to the report's release. The bearish placement number
was higher than a prior year placement number, but lower than April
placements two years ago.
Packers filled in purchases from other regions following
Texas sales at $125 Thursday. Sellers were less willing to concede lower
prices in other regions. Kansas feedlots were able to push packers to
$125.50. In the north including Colorado, where supplies are increasing,
cattle owners were able to sell cattle from $125.50 to $126.50 live and
$201-2 in the beef. These prices were steady to weak with the prior week but
well above Texas selling prices.
The spring rally in beef demand is in full swing. Beef is
finding some help from competing meats. Chicken breasts have risen 30% since
April. Pork has moved to a 9 month high. Boxed beef prices are
moving higher accompanied by larger slaughter rates.
Choice cut out was $1 higher at $209 and select at $192. The
choice/select spread has widened to $17.
Today's cattle on feed report accounted for the large drop
in feeder prices. April witnessed a bunching of placements into the nation's
feedyards. Placements increased from imported feeder cattle from Canada and
were accompanied by a surge in placements off winter wheat fields in the
south. While the 15% increase was large, it was benchmarked against a small
placement number in 2012. Feeder cattle remain under price pressure as
feedlot tire of losing money representing equity and players drop out of the
mix. A 750# steer was selling for $132 on the southern plains.
Corn prices developed a bifurcated price pattern with the
nearby July contract spiking up a dime while new crop months fell. Planting rates continue at record
breaking levels. Many farmers are planting with GPS guidance
and tractors and planters are in the field 24 hours a day and the time
required for planting is a small fraction of the time it took 10 years ago. Corn cost into most rations in the
south is currently at $13.50 cwt.. Corn prices are now priced off the July
board with a basis of $1.00 a bushel for Guymon
The basis is simply a relationship between cash prices and
the futures prices. It is not a fixed number. The cash market is determined
every day and week in various transactions occurring between processors and
cattle owners. The futures market is determined between buyers and sellers
of futures contracts on the exchange. In the cattle complex some individuals
or companies may trade in both markets. The futures prices can influence the
cash markets and the cash markets can influence the futures markets but
neither is determinative of the other.
A study of historic basis relationships for cattle sold in
May to the June futures reveals a wide range of numbers from flat to a $8
premium to the June futures. Both cattle owners and beef processors tend to
look at the historical averages and base forward contracts off those
averages. Forwards contracts set a basis and can set a price but usually
those transactions consummate with the actual delivery period for the cattle
prior to the expiration of the contract. In the current environment a
processor with a May contract at $2-3 over the June board would jump at the
opportunity to quickly pull the forward contracts ending the trade resulting
in cattle purchased well under the prevailing cash market.
Some people believe the basis only pertains to hedged
feeders. June futures will influence cash trade for all cattle owners
whether hedged or not. The logic is simply. Do you want to sell your cattle
now for $125-126 or wait until June and sell them for $120. In a more
obvious trade, why not sell cattle now that are destined for a June market
slot and capture a $5-6 cwt. premium and replace those cattle with a June
live cattle contract[s]. This swap would leave the cattle feeder with an
extra $60/head in their pocket.
Some bankers frown on the latter strategy and margin
stressed cattle owners might be happy to accept the sell early strategy. The
feeding of beta agonists complicates the decision to sell early but there is
some evidence that some formula sellers and open market sellers have chosen
to move forward the marketing of June cattle. The chart shows carcass
weights that have consistently been well above last year now closing to the
2012 number. This tonnage reduction combined with less numbers might improve
the beef situation for summer months.
Bull cattle markets are generally created when market participants
have given up on the market. This give up mode translates into weak sellers
and large processor margins. Large processor margins leads to larger
slaughter numbers and more beef moved pulling cattle through the pipeline --
much healthier than pushing them through. In the meantime, packers
encouraged by improving demand slaughtered 652,000 cattle this past week --
a high for the year.
LIVE BID WEBPAGE
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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