MARCH 15, 2010

Two unusual and important occurrences, for market bulls, were observable when cattle traded for $95 on Friday. First, the market jumped $3 surprising even sellers. Weekly moves of this magnitude are unusual. Second, the packer appetite at higher prices was voracious and the volumes were large in every region. Live sales in Nebraska averaged $91.50 -- full $3.50 behind Texas. In the beef sales in the north were mostly at $147 -- two to three dollars higher than prior week.

Cattle owners will attempt to turn last week's gains into a directional momentum change. Packers will resist higher prices unless box prices post gains this week. Traders will be watching show lists for indication of available supplies.

Box prices firmed at week's end but will need to find some support this week to sustain current price levels. The benchmark choice box cut was quoted at $150 with select at $148.50. Carcass weights in the latest lagging indicator at the end of February, fell to 802# -- 28# under last year.    

Feedlots will be cautious when faced with higher replacement costs. Breakevens on cattle purchased this spring will approach the mid to high nineties next fall. Movements from wheat fields is concluding and most cattle left on grain fields will be targeted for May delivery. The moisture conditions for winter pasture and summer grass is excellent and few cattle are expected to be offered for April delivery. A 750# steer was quoted at $103 in the southern plains. 

Corn prices weakened in late week trading. Traders are working off the May contract and most basis trades were 25-30 over May in the southern plains. Corn is now pricing into most rations under $7.00 cwt.. 

ENDANGERED SPECIES

The sighting of a rare and endangered species was identified this past week -- a profitable bovine. It was thought by some that the species was extinct. In what has been the most prolonged period of losses in the history of the industry, most cattle close outs will return to black ink this coming week. In the past three years, there may have the occasional pen or lot of cattle reporting a profit, or a few groups of backgrounded cattle, but the preponderance of cattle close outs have been characterized by losses and some of those large.

It is important to remember the return to profitability is not a permanent condition and profitability is fragile. The margins in cattle closing out this coming week are not large and for some may not be positive because of the storms and performance deficiencies. Moreover replacement cattle have jumped higher and cattle feeders may simply be raising their risk profile for the future breakevens.

Packers will not be encouraged by the market action this week. Box prices barely moved while the sharp jump in live cost threatened already skinny margins. The fact packers were willing to jump into the market at sharply higher prices means a couple of things. One, they believe the price rise is here to stay. More importantly for the bulls, it means packers believe shorter supplies will follow.

Texas was not current on sales. Light volumes of sales, in the past few weeks, have taken a toll. Storms have slowed performance and reduced outweights, but the numbers of cattle on offer is currently large -- NOW. Behind the abundant supplies of March will be shortened supplies in April. Markets anticipate and we are witnessing a forecast for shorter supplies in the weeks ahead.

There also is emerging signs of improvement in the export markets. Improving economies in Asia and a historically weak dollar are adding demand to our beef export markets. With the exception of Mexico, stronger demand is occurring from all of our trade partners. Mexico, our largest buyer of beef, is still in retaliation over the disastrous COOL program.

The follow through to this week's market action will need to be demonstrated at the meat counters of the nation's grocery stores. If consumers are willing to support beef purchases at higher prices and, if retailers are willing to sponsor beef features, the current rally can be sustainable. 

  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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