May 22, 2019                                








Cash Cattle.


Wednesday broke out cash trades across most regions at $1-2 lower prices. The highest prices paid were in Iowa where live sales were at $116-118 live and $186 dressed. Nebraska, Kansas and Texas sold cattle at $114-115 live and $185-186 dressed.


Packers are careful to monitor slaughter weekly kills to assure a balance between supplies and demand and have done an excellent job and have maintained the balance in a manner that returns them close to $200/head for processing. There is a reason the prices of publicly traded stocks of processors are rising.


Corn prices have staged a rally of almost 50 cents a bushel but prices flattened today. This move has been driven by government help on the price and late plantings that will undoubtedly impact the yield. Stocks remain high but usage also is high with large numbers of cattle, hogs and chickens consuming record amounts of grain. 


Cattle Futures. Futures prices were lower in response to lower cash prices.     


The Comprehensive Fed Cattle Weekly Report offers the most current carcass weight information. Steers and heifers are grouped together. The latest report shows carcass weights down 5# to 828# -- 6# under last year. Seasonally carcass weights bottom during May. A change this year would change the tonnage number if weights continue to decline. 


Forward Cattle Contracts: Cattle committed to the beef plants come in several forms. This past week the only volume of activity was in November off the December board at -$1 basis.


Weekly graphs on the Comprehensive Weekly Fed Cattle Report break down the categories of trade for the week according to 1) formula cattle; 2) negotiated live; 3) negotiated dressed; 4) and forward contracts. Some cattle included in the formula category are week to week negotiated grids and not committed cattle to one plant. Other cattle designated as formula are "over the tops".


The Cutout. Box prices were lower in mid week trading. Box prices are a full $10 over last year.  The choice/select spread remains wide seasonally and is expected to continue into the summer  -- currently at $13.


Beef Feature Activity Index. Warm weather for grilling will be late in many areas of the country but given comparative pricing against other meats, beef should gain marketshare. Many of the current purchases will be marketed in stores over the Memorial day holiday then followed by Father's day then followed by 4th of July. The price of competing meat choices will be the driver to push retailers to sponsor special beef features. Absent those specials, the price of beef should be a calling card to the consumer based on price alone. This will especially be true if the recent decline and expected decline in cash prices for live cattle continues and translates into lower box prices.


Cutout Values as of Wednesday, May 22, 2019
Choice CutoutChoice Price Change
219.75Up $0.17
Select CutoutSelect Price Change
205.81Down $0.77
Choice/Select Spread


Replacement markets


Rains continue in much of the plains. Stocker and feeder prices seemed to be leveling but sharply higher grain prices are keeping a lid on replacement prices. Gains have been good on winter pastures and many yearlings are coming to the feedyards heavy. Stocker operators will be watching the large spread between May and August feeder cattle futures.


The focus this week will be the COF report on Friday and April placements have been estimated by some to be 20% over prior year and a all time record. Anticipation of negative news always seems to overstate and over-react.


Oklahoma City. There was a weak undertone to all classes of cattle. Higher grain prices are spilling over into replacement prices. 


Feeder futures. Futures were lower.   


Feeder Cattle Cash Index. May futures were track the cash index into the close of the contract this month.    


Forward cattle contracting. Feedlots are increasing negative basis levels for feeder cattle offered in the summer months. Weather and a large premium in the August feeder board will push many marketing plans into the summer periods.  


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


Grain Futures. Corn opened today down reversing the long run up. Corn contracts dipped back under $4 in most trading months. The corn plantings are falling way behind last year and seasonal averages because of the moisture. Nationally corn is 25% behind a fi e year average and little letup is happening from daily rain. Some acres will be forced to switch to soybeans and others to a short maturing crop with limited yield. Preplanting estimates were guessing corn acres would be up by a million acres. That estimate is now in question. The basis is currently at 55 over the July board in Guymon, Oklahoma. Corn is now pricing into rations at $8.00 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            May                          102.8      102.0-103.8
PLACED DURING           April                          112.9      108.6-118.9
MARKETED DURING         April                          106.7      105.9-107.1






Two factors influenced the cattle markets at week's end. Sellers ceased jumping on any bid from packers and many were content to hold cattle into next week rather than continue selling lower. This resulted in the smallest purchases by packers in many weeks. Convergence of futures and cash in the period leading up to the delivery month will close the large gap.


In the futures market the long side liquidation mode seemed to come to an end. Futures posted back to back gains late last week after a long period of daily declines. Technical traders who have participated in the downward spiral seem prepared to wait for signals from the fundamental side of the business. Some pointed to the late week strength in the box prices as signs the demand size of the beef business is healthy and thriving.


Picking market highs and lows is always difficult business and too many factors feed into the fundamental supply/demand equation to find simple answers. Analyst already had picked 4 different highs beginning in February finding each guess to be wrong. Most analyst now are foreseeing a market working lower into the fall when many speculate the numbers of cattle offered for sale from the nation's feedlots will overwhelm the slaughter capacity.


Many of these forecasts are based on April placements that some have suggested might be 25% over last year. We will find out this coming Friday when the monthly COF report is released. One aspect of cattle placements that is being ignored in this scenario is the fact April is not a large placement month and whatever number is reported, it only pales in comparison with May placements. Evidence is accumulating showing May placements to be under prior year due to the many weather disruptions.


The stage is set for a surprise on this fall's price level. Little weight is given to the possibility American beef might benefit from world red meat realignment as African Swine Fever takes a toll on world supplies. This balance will be felt around the world regardless of our trade status with China. There has been little revealed regarding the Trump administrations "help for American farmers" harmed by the trade wars. As will always be the case, the verdict is out for future price levels and forecasts will continue to be updated as more information is introduced.




Below are links to articles published in the Cattle Report pertaining to industry change. Two important changes are on the table for progress -- supply chain management and animal ID. Both applications will transform and disrupt the industry.






The Case for National ID for Cattle


Reforming the Futures Contract and Cash Trading of Cattle





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







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. 




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.

750 # Feeder Steer1,017.00135.60
Cost of Gain 600 pounds469.460.78
Estimated Interest(Prime + 1%)40.17 
Current Breakeven1,518.53112.48
Current Futures1,515.78112.28
Net Profit / Loss-2.75-0.20


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 ago1,110.00148.00
Cost of Gain 600 pounds525.690.88
Estimated Interest(Prime + 1%)36.67 
Resulting Breakeven1,672.36123.88
Current Texas Panhandle Cash1,562.09115.71
Net Profit / Loss-110.28-8.17



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