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 October 19, 2018                                  

                

 CATTLE MARKET REPORT AND ANALYSIS

  

 

PLAINS MARKET TALK

 

 

Cash Cattle.

 

Packer activity broadened on Thursday with bids of $111 in the south. A few cattle sold in Kansas at $111 but most bids were passed. Continued sales in the north were at $111 live and $174 dressed. The most interesting development was a sharp  increase in the south of both volume and price of dressed sales in Texas. Dressed sales at $178.50 would be $4.50 higher than last week and the equivalent of $113.50 live. Results for Friday will be compiled Monday following a bullish COF report.

 

Processors are maintaining the large margins of $150-175/head and will want to keep the cash prices steady and build on margins by asking higher prices for the beef. It  becomes increasingly important to maintain slaughter volumes of fed cattle above last year. Given an improved economy, larger employment and expanded exports, box prices have a good chance of holding on to the premiums over last year.

 

Cattle Futures. Futures prices were little changed. Continuing deliveries are keeping October in line with cash prices.

 

Carcass weights are released each Thursday [lagging the market by two weeks] and are a closely watched barometer indicating the position of cattle feeders in the nation's feedlots. The last report released for the week of October 6th, had steer carcass weights at 903# which is 3# to last week and 4# over last year. Heifers carcass weights are up 5# to 835# which is 12# over last year.

 

Forward Cattle Contracts: The predictable aspect of a rising futures market in the deferred contracts is an increasing number of cattle booked for sale in an effort to lock in profits. Packers make purchases in November and December at Par to one dollar discount but purchases in the spring months were Par and one dollar premium to the board. 

 

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. The composite cutout was sharply higher with the cuts gaining over $2. Choice quality grade declines in Kansas have boosted demand for the choice cuts. The build up for holiday business starts earlier each year and retailers will begin planning holiday specials.  

 

The weekly slaughter volumes have sustained 635-650,000 head level for several weeks. The number of cattle on feed will require fed cattle slaughter for the balance of the year to exceed last year. If slaughter fails that benchmark, fed supplies will be building in the nation's feedyards.

 

Beef Feature Activity Index. Fall is never the strongest season for beef consumption but leading up to the holidays, beef will move back into play. General prosperity in the economy will continue to support demand for beef. Football games and outdoor events with cooler weather can help encourage beef features. 

 

Cutout Values as of Friday, October 19, 2018
Choice CutoutChoice Price Change
207.93Up $1.11
Select CutoutSelect Price Change
194.24Up $1.89
Choice/Select Spread
13.69

 

Replacement markets

 

October is a large month for movement both in and out of the feedyard. Runs of fed cattle placed off wheat last spring are cleaning up but leaving room for new purchases. Muddy conditions are slowing pen cleaning and cattle performance. Sales reports are mixed with some reports of light weigh ups.

 

The winter grazing season got a boost when rains covered most of the southern plains. The purchase of new calves held the promise of nice margins into the spring but several factors are moving to interfere with those margins. Calf prices have moved higher until this past week. Feeder futures for the spring fell Friday. Grazing rates have moved from 50 cents on the gain last year to asking pries of 60 this year. Once the health risk is factored the margins are squeezed

 

Oklahoma City. Widespread rains caused smaller receipts this week at auctions. Most prices were steady to lower.                   

 

Feeder futures. Feeder futures were higher in the front months. Hedgers are starting to take positions in back months pressuring the price. 

 

Feeder Cattle Cash Index. Futures and the October index will stay in sync for the balance of the month. Seasonally October is the largest run of feeder cattle moving to feedyards.          

 

Forward cattle contracting. The basis bids that exist are $3 back for 800# early spring steers delivered to the southern plains feedyards. 

 

National Weekly Feeder Summary released on Friday of each week tracks the national prices by region for last week.   

 

Grain Futures. Corn prices worked lower. Last week USDA lowering the crop size and the carryover. The basis is moderating after moving higher with the heavy rains. The large crop is expected to complete the harvest in the next few weeks. Crop yields are rising now forecast above 180 bu/acre. The basis is currently at 55 over the December board in Guymon, Oklahoma. Corn is now pricing into rations at $7.35 cwt. in the Oklahoma Panhandle.

 

U.S. CATTLE ON FEED ESTIMATES
                   IN YARDS WITH MORE THAN 1,000 CAPACITY
 
                                                  AVERAGE            RANGE
                                   ACTUAL       OF ESTIMATES     OF ESTIMATES
CATTLE ON FEED        October           105            106.3      105.6-107.4
PLACED DURING       September            95            100.3       96.7-105.0
MARKETED DURING     September            96             96.5        95.9-99.3
 

 

CLIMATE CHANGE

 

Writing a blog on a controversial topic often provokes hostile mail and it was not surprising when this week's topic on the climate did exactly that. It is no secret many in agriculture view expert opinions on climate change as flawed. It is also true that many of the harsh opinions of this week's editorial failed to make persuasive arguments to us. We always stand ready to change our minds but not when challenged by name calling and insults.

 

The anti-Trump media repeats the charge that Trump has said repeatedly that climate change is a hoax. This, like much of the polarized press reporting, is an exaggeration but President Trump has certainly not advanced any efforts to reverse what is becoming increasingly obvious as a warming trend that threatens our planet with dire consequences if it is not interrupted. In fact some of his actions, especially regarding coal, will increase the volumes of carbon released into the atmosphere each year and accelerate the damage caused by carbon emissions.

 

The warnings about climate change are becoming repetitive and many in the public tire of reading another warning by another team of experts. Sometimes the studies are exaggerated for effect and attempt to scare people rather than arrive at viable solutions. There will be many readers of this blog who have stopped reading before they get to this sentence.

 

The evidence of global warming is overwhelming and the impact for American agriculture is critical to our future and our ability to provide food for the world. The most recent report, done by scientists assembled by the United Nations, takes a different tack on a most serious problem. Rather than concentrate of the impact of global warming like melting glaciers and rising oceans, the report focuses on a plan to slow the rate of warming sufficiently by the end of this century to allow humans to adapt to the changing world.

 

The report attempts to limit the warming this century to only 2.7 degrees – a seemingly small number but one with a large challenge. This would require the world to abandon coal and fossil fuels in the next twenty years. This would not eliminate hurricanes, floods, or droughts but would prevent a catastrophic seismic collapse of our agricultural production.

 

The world has already warmed by 1.8 degrees and the consequences are in front of all of our eyes. The Paris agreement set forth a plan to reduce greenhouse-gas emissions and even if this country remained a signatory to that agreement, it is not enough. Under the plan the amount of carbon released into the atmosphere will need to fall every year until 2030 when it should be reduced by one half. Instead, last year was the largest release of carbon pollution on record. By 2050 the world must get 80% of its electricity from renewable [wind or solar] or nuclear generation.

 

Today coal generates 40% of the world’s electric power and that number must be reduced to 7% by 2050. The implication is particularly serious for plants and animals. Habitats will be disrupted and species will disappear.

 

It is easy for those of us in agriculture to ignore the problem or put it on the back burner -- from year to year and crop to crop we notice little change. Many of us won’t be around when the repercussions are felt in the later part of this century. Many in agriculture think this issue is the provenance of envirimental activist instead of a core threat to our industry where it will be felt the most. Ag has a special responsibility to assume a leadership role in preventing a disruption to our planet and our ability to feed the world.

 

 

CATTLE REPORT LIBRARY

 

Below are links to articles published in the Cattle Report pertaining to industry change. The Beef Blockchain will be an important change in the beef industry and its application will transform and disrupt current practices.

 

THE BEEF BLOCKCHAIN

 

THE BEEF BLOCKCHAIN SLIDE SHOW

 

The Case for National ID for Cattle

 

Reforming the Futures Contract and Cash Trading of Cattle

 

 

NOTE TO READERS

 

Sections of the newsletter are redesigned with hyperlinks to the appropriate source pages. The hyperlinks are in light blue within the report.

 

 

 

 

FURTHER NOTES AND EXPLANATIONS OF BREAKEVEN/CLOSE OUT TABLES

 

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 futures contract.

INPUTSTOTAL$$CWT
750 # Feeder Steer1,161.60154.88
Cost of Gain 600 pounds449.610.75
Estimated Interest(Prime + 1%)32.31 
Current Breakeven1,637.97121.33
Current Futures1,650.38122.25
Net Profit / Loss12.400.92

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.

INPUTSTOTAL$$CWT
750 # Feeder Steer OKC 150 days ago1,080.00144.00
Cost of Gain 600 pounds499.640.83
Estimated Interest(Prime + 1%)25.96 
Resulting Breakeven1,605.60118.93
Current Texas Panhandle Cash1,498.50111.00
Net Profit / Loss-107.10-7.93

 

 

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