April 23, 2014
CATTLE MARKET REPORT AND ANALYSIS
Packers are seeing opportunity on the doorstep with rising
beef prices and pressures on cash cattle. The object of this week's trading
will be to raise beef prices without raising live cattle prices. Early bids
of $144 in the south failed to attract any sellers. Futures prices rose
again in response to higher box prices and firm asking prices from cattle
owners. Most cattle remain priced $5 over April futures. Box prices have
added $5 this week.
The speculative longs in the April live cattle contract
had a easy choice. Did they want to remain long the April contract or move
speculative long positions to the next trading month [June] selling at $8.50
discount to April. Many different traders made the choice at the same time
resulting in a drop to the April live cattle price and rise in the June
Box prices continued higher. Packers will want to pay no more for live cattle
hoping to capture all of the advance in box prices. Packer inventories are thin and this allows
them to position for retailers who will need to purchase inventory for the
coming week when beef will find a more prominent place on the meat counter.
Choice box prices were quoted $2 higher at $231 for choice and select $1
higher at $220. The choice/select spread is $11.
Supply issues are apparent in the feeder market. Receipts
continue to lag prior year and auction barns across the plains and south are
seeing volumes of cattle decline. Prices were generally firm to $2 higher on
replacement offerings. A 750# feeder steer was costing $180 in the plains.
A quick look at the year ago price comparisons for feeder
cattle tells the story of replacement costs. A year ago a 750# feeder steer
was selling close to $130 and today close to $180. The $/head today is $1350.
Operators at every level are tallying the $/head and especially the bankers.
The value of a 750# steer has increased $350/head over prior year. Time
is not long past when $350 bought a pretty decent feeder steer.
Corn prices fell in early week trading but recovered some
of those losses yesterday. The spot May contract remained below
$5 as planting begins in the south. World crop
production for corn is expanding and conditions are good for planting in the corn
belt this year.
The basis is 65 cents
over March corn for Guymon
Oklahoma. Corn is pricing into most rations at $10.00
cwt. in the southern plains.
A MUTUAL INTERDEPENDENCE
Suspicion and distrust are not unusual words used by one
party to characterize the opposing party in cattle price transactions that
are at the heart of every week's business. Whether your interest are at the
feedlot level or the beef processing level, weekly changes in fed cattle
prices favor or disfavor one of the parties. This weekly conflict belies a
greater need for each -- that both the cattle feeder and the beef processor
prosper and continue in business.
At no time has this relationship been tested more than the
recent couple of years of record breaking grain prices and downsizing of the
national cattle herd. Downsizing has meant coping with oversized facilities
built for another time when cattle were plentiful. Over capacity means
forced reduction of both processing plants and feeding capacities.
Downsizing hurts and losing money over prolonged periods is painful whether
you are in the beef plant or the feedlot.
The tug of war between fed cattle offerings and demand for
beef is a complex matrix and just when someone believes they have figured it
out, a surprise in the marketplace surfaces that changes it all. Demand for
beef has been slow to develop this spring and some feel it is on the way.
Processors have pared back the slaughter to record low levels because of
negative margins. Supplies of fed cattle are increasing and the balance
between increasing supplies and increasing demand will feature a new price
point. No one knows how that will play out.
Packers successfully lowered input cost this past week
while at the same time raising box prices. This happened by reducing the
slaughter. The match up is fairly simple. Cattle feeders can refuse lower
bids and force higher prices at will for any given week. The problem is the
next week and the next. If they refuse lower bids and only sell a few cattle
at higher prices then they carryover more cattle and so on until numbers
build and they are compelled to sell rather than suffer overweight
This tension between supplies and demand is constantly at
work. The ideal situation of both processor and feeder profiting is rarely
at work or if it is at work -- not for long. Typical cycles are for one of
the parties to be profiting while the other is suffering. The last either
would want is for the other party to lose money for such a prolonged period
that they go out of business.
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.
click on "CHECK OUT THE
MARKETS " to go to the market page
CLICK HERE TO SEND YOUR COMMENTS