PLAINS MARKET TALK
Cash Cattle. A more differentiated market developed this week across the
plains. Southern plains sales were mostly at $115 live or three dollars
higher, while northern sales held mostly steady at $112 live in eastern
Nebraska and Iowa/Minn. and $175 dressed. Western Nebraska and Colorado were
mainly at $115-115.50 live. The differences were both regional basis
differences as well as prices representing the differences in quality and
yield expectations for the target pens. At week's end a softer tone in the
market reflected declining expectations for next week's cash prices.
Cattle Futures. Futures tumbled as traders took a view the recent rally
that has taken cash prices from under a dollar to $115 has run out of gas.
Technical traders acted on overbought signals. Fundamental analysts also see
questions regarding the sustainability of the current cash prices and have
faded the futures. The week ends with a price structure reminiscent of
summer and early fall markets when the futures lagged the cash by $5-8
are released each Thursday and will be a closely watched barometer
indicating the position of cattle feeders in the nation's feedlots. The last
released for the week of November 19th, had steer carcass weights flat at
918# but still 5# under prior year. Last year weather hit feedlots in
most areas prior to Christmas, leaving harvest weights sharply lower in the
final weeks of the year. The average weights this year are expected to move
heavier than last year as excellent feedlot performance pushes weights
Contracts: Packers bought only for next week and steered clear of
forward purchases this week. Futures gave packers little reason to want to
forward price any cattle. They will be very interested in forward basis
trades off the December and February contracts but sellers will be reluctant
to basis trade the heavily discounted futures market.
The weekly breakdown of fed cattle moving to the beef processing plants is
as follows. 1) formulas 55%; 2) negotiated 20% [both live and flat dressed]; 3) forward contracts 25%.
Some of the formula arrangements are week to week negotiated prices and not
committed cattle to one plant.
The Cutout. Box prices softened into week's end. The likelihood of beef
features this holiday season is high. Retailers can build large margins even
at reduced prices and beef cuts sell well for the holidays and especially
when prices drop. Middle meats lead the way.
The burden of a larger cow slaughter this year has added
to the supplies of ground beef and contributed to more tonnage. Breeders
will be looking at their bottom line as they make judgments regarding
culling cows this fall. Those judgments will likely slow any
additional expansion if the fed prices haven't already done that. Heifer placements are increasing in the nation's feedyards.
The role of increasing heifer placements is important in assessing the
stages of the cattle cycles.
|Choice Cutout||Choice Price Change
|Select Cutout||Select Price Change
Many stocker operators have recognized the value of
patience in purchasing calves for grazing programs. The past two years has
evidenced preferential pricing for those who out-waited others in making
purchases. Each delay resulted in lower prices. This year when winter
grazing opportunities surfaced, many operators decided to wait until late in
the year to purchase grazing stock. This year the delay had an unintended
consequence. Late year purchases are ramping up prices by $25-30 cwt. taking
much needed margins out of the grazing programs.
The slowdown in feedlot placements during October have
been replaced with brisk placements during November. The low prices of
October are gone but the large supplies of feeder cattle remain and will
continue to come in the months ahead. Many areas of
the country have received needed rain and there will be a good supply of
forage for extending grazing periods on winter pasture.
Oklahoma City. Prices for all classes of cattle were spots higher early
then mostly steady late.
Feeder futures fell several dollars at week's end as traders look for
lower markets for all replacement cattle next week. The
January contract pealed $4 off the price in the last two days of the trading
week. Lenders have encourage stocker operators to take
protection on winter grazing cattle in the spring months and that hedging
pressure has held prices discount to the January board.
Feeder Cattle Cash Index. The index will likely move premium to futures.
Forward cattle contracting. Feedlots are not particularly interested in
forward contracts for spring thinking they would rather wait than forward
price. The basis levels for forward contracted feeder cattle is being
lowered by many feeding firms. Basis trades off the forward contracts are
quoted -$2-3 for a 800# steer delivered to the Texas Panhandle in the
Weekly Feeder Summary released on Friday of each week tracks the
national prices by region for last week.
Corn futures. Corn and wheat prices regained some early week losses. Corn
are moving higher at 15 cents over December in Guymon,
Oklahoma. Corn is now pricing into rations at $6.30
cwt. in the Oklahoma Panhandle compared to wheat at $6.00 cwt..
HOW CURRENT ARE THE FEEDYARDS
Cattle feeders have enjoyed several consecutive weeks of
improving prices and some are expecting the rally to continue but late week
futures trading cast doubts on the price direction in year end trading.
Futures prices are guesses and they can be wrong just as individual traders
can err in their forecast. There are many complex forces at work on the
market and little science to be applied to price forecasting.
Carcass weights is important in evaluating both
currentness of fed offerings and supplies of beef on the market. The last
report from November 19th showed average weights for steers 5# under prior
year but that is expected to change and weights will likely exceed last year
in the next couple weeks. This is not so much related to the current nature
of offerings as to excellent feeding weather. There remains and will
continue to be more heifers in the slaughter mix tending to reduce total
average carcass weights.
The quality grade on cattle this year is 1-2% higher grade
than last year. This continues a long string of years in which the quality
grade has improved each year. This is in part genetics, part heavier cattle
placed on feed, and part cattle fed longer. With larger supplies of cattle
on hand, and corn prices low, the inclination of feeders is to lower the
breakeven by feeding cattle longer.
Show list numbers continue to run well above prior year
but those numbers are driven by larger monthly placements, year on year,
except for the most recent October number. Show lists tend to be noise when
taken in isolation. There is little question that the cash trade has been
larger for the past few weeks but that does not necessarily mean we are
digging into future supplies leaving a gap in the upcoming weeks.
Regardless of the current nature of fed offerings, the
demand side of the business will determine the future of prices for cattle.
Beef features by retailers between now and Christmas will set the stage for
beef movement and consumer demand at the stores. There is support for the
notion that retailers with generous margins on beef will sponsor specials in
the coming weeks and those specials will find good reception among
consumers. Winter may not be prime time for beef but a respite from turkey
is always welcome.
Not to be excluded from the mix is the important but often
overlooked factor of the dollar index. Subsequent to Trump's election, the
dollar has been in major rally mode as interest rates have posted the
largest short term advance in years. An advance in the value of the dollar
makes our exports more expensive and our imports cheaper -- not good for
beef. It is too early to assess the new administration's trade policy but an
isolationist policy would not be good for beef exports.
In the final analysis the current nature of fed cattle is
assisted and encouraged by a heavily discounted futures board. The need to
market cattle now for fear of lower prices in the future is the number one
adversary of overfed cattle. Stubbornness and fighting the market also is
illogical when the option is to replace with another set of cattle with a
still lower breakeven.
NOTE TO READERS
Sections of the newsletter are redesigned with hyperlinks
to the appropriate source pages. The hyperlinks are in light blue within the
FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE
Regional differences in grain and cattle basises create a
difficulty in modeling a national composite for current close outs or a
proforma forward look at a breakeven. Readers should consider your own area
for adjustments to these models.
CURRENT BREAKEVEN PROJECTION
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
|750 # Feeder Steer||935.25||124.70
|Cost of Gain 600 pounds||397.45||0.66
|Estimated Interest(Prime + 1%)||25.32||
|Net Profit / Loss||4.98||0.37
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.
|750 # Feeder Steer OKC 150 days ago||1,110.00||148.00
|Cost of Gain 600 pounds||411.66||0.69
|Estimated Interest(Prime + 1%)||24.33||
|Current Texas Panhandle Cash||1,504.04||111.41
|Net Profit / Loss||-41.96||-3.11
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