April 22, 2019                                

                

CATTLE MARKET REPORT AND ANALYSIS

  

 

PLAINS MARKET TALK

 

 

Cash Cattle.

 

Nebraska, Colorado and Iowa reenforced the value of just saying NO. Packers raised bids to $128 live and $208 dressed in the north and cattle owners passed. Quickly the prices moved to $130 in those regions and trades were consummated at $130. This diminished the impact and improved value of sales in Kansas and Texas where cattle sold for $126 Wednesday. The Texas sellers took the first bid out of the box and Kansas soon followed. Prices were $2-3 higher than the previous week in all regions and the spreads between north and south continued at $4.

 

The processors found it easy to raise slaughter volumes with higher box prices and expanding margins. The past four weeks have posted slaughter numbers of 614,000 head, then 621,000, 638,000 head, and then 638,000 again in the most recent week.

 

Cattle Futures. April posted a sharp rise as cash prices moved higher in all regions.

 

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 1# to 840# down 9# from last year. Weather will no longer dominate the carcass weight determination. Basis levels and profitability will drive many decisions on when to market cattle and at what weight into the spring. Last year the carcass weights bottomed seasonally in May.

 

Forward Cattle Contracts: Dairy dominated most of the forward contracts at $15 back of the futures. Beef basis trades were modestly weaker at $1-2 under the futures for the contrat month.

 

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 continued higher posting $4 gains for the week. The improvement in demand accompanied by larger slaughter numbers is a healthy sign for the beef industy.  The choice/select spread continues to widen.

 

The Chinese/American trade negotiators will host two more face to face sessions before an expected announcement of a trade deal in late May or early June. The anticipation is probably built into the market at this point but detours with this administration are always possible. The uncertain outcome of recent talks with the Japanese is clouding our exports to Japan and Australia continues to capture an increasing market share from American beef.

 

Beef Feature Activity Index. Easter is late this year and repeated storms have dampened the interest of retailers to sponsor special beef features. Pork also has suffered in recent features and is likely to be eliminated from many spring and summer features because of price. Moving forward, beef is expected to emerge the winner given the sharp rise in pork prices.

 

 

Cutout Values as of Wednesday, April 17, 2019
Choice CutoutChoice Price Change
232.76Up $0.71
Select CutoutSelect Price Change
220.16Down $0.99
Choice/Select Spread
12.60
 

 

Replacement markets

 

The increases of numbers of cattle in winter grazing areas will have to market soon. Some stocker operators have faced the same challenges of hedged inventory as feedlot operations. The basis has been poor and demand impaired by lack of demand from feedyards in the north. USDA reported stocker cattle on winter wheat fields up 25% and will the numbers the balance of April and through May be too large? Some northern feedyards may not restock leaving a glut of cattle to move in May.

 

Offerings of cattle for the balance of this month are described by sellers as May cattle in an attempt to price off the May board. Those May cattle for sale that can possibly be held into June are attempting to price off the August board. The $15 premium built into futures from April to August is slowing marketing plans for many operators but heavy feeders also are receiving a large discounts. Feedlots are maintaining the large basis discounts on feeder cattle.

 

Oklahoma City. Cash prices have been strong each Monday for the past few weeks and continued this week.  Moisture in the areas sparked local demand and the warm up in the weather spurred buying interest.                   

 

Feeder futures. Feeder futures were higher.

 

Feeder Cattle Cash Index. Futures will track the April cash markets that are moving higher.

 

Forward cattle contracting. Feedlots are lowering basis bids for forward sales as large premiums are built into futures pricing. The glut of feeder cattle expected in May will find buyer resistance on decent basis levels.

 

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

 

Grain Futures. Corn prices were higher. Planting this year's crop may be delayed but moisture will be ideal. The basis is currently at 50 over the December board in Guymon, Oklahoma. Corn is now pricing into rations at $7.40 cwt. in the Oklahoma Panhandle.

 

USDA CATTLE ON FEED

 

Cattle on Feed Inventory, Placements, Marketings, and Other Disappearance on 1,000+ Capacity Feedlots - United States:

                                                          2018 : 2019 :

On feed March 1 ........................:   11,715 11,796         101

Placed on feed during March ............: 1,921 2,014          105

Fed cattle marketed during March .....: 1,840 1,777           97

Other disappearance during March .......:   67     69          103

On feed April 1 ........................:      11,729 11,964        102

    

                        
Placements were 1 percent higher than pre-release estimates giving
 concern to many that a continuation of large placements in April and May 
will point to a glut of fed cattle this fall. 
 

 

                     

HAVE THE REGIONAL SPREADS GOTTEN TOO WIDE?

 

There is little question that the supplies of market ready cattle in the south is more plentiful than market ready cattle in the north. Texas for the most part has avoided the debilitating winter storms and marketing plans have occurred on time. This has been accompanied by the closure, then partial reopening, of the beef plant in south Texas. This has left the Texas sellers on the defensive and weakened any leverage they might have in bargaining for higher prices enjoyed by those northern feeding operations.

 

Kansas as suffered from reoccurring wet weather and many yards have been forced to shuck mud tired cattle and make room for new incoming cattle. This situation combined with heavy fall placements of yearlings off summer pastures has resulted in excessive supplies relative to slaughter capacities in those areas.

 

The rule of thumb for regional price differences in cash prices should be the freight -- much as it happens with grain. Kansas serves as a proxy state for the southern plains and can move cattle both to Colorado plants and Nebraska plants. The current regional difference of $4 cwt. is greater than the freight spread.

 

This is evidence of malfunctioning markets likely caused by the over-reliance of cattle feeders in the southern plains of cattle committed to a plant either on a formula or negotiated grid. The small number of cattle trading in the cash markets are excess supplies that are dumped on the market competing for kill slots and pricing the overwhelming amount of formula and negotiated grid cattle.

 

There is some evidence the heavy run of yearlings placed on feed last fall is coming to an end in the south. For the last two weeks, processors have found it necessary to finish out the weekly needs for the cattle in the south by purchasing fill in cattle on Friday at sharply higher prices than early week purchases. Buyers were careful not to destroy the low base price already established and make those purchases either at over the top trades or flat beef dressed prices. Sales of cattle in Texas and Kansas on Friday at $208 dressed would be well over $130 based on standard yields. These prices were accompanied light live sales at $129.

 

It would not be surprising to see, over the next couple of years, more cattle traded on negotiated grids allowing sellers to shop the best base price then accept the grid price of premiums and discounts of that particular plant. Of course, looming in the background is always the difficulty of making all those transactions transparent to the marketplace.

 

 

    

CATTLE REPORT LIBRARY

 

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 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 Steer1,092.75145.70
Cost of Gain 600 pounds483.870.81
Estimated Interest(Prime + 1%)42.81 
Current Breakeven1,611.08119.34
Current Futures1,606.91119.03
Net Profit / Loss-4.17-0.31

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 ago1,110.00148.00
Cost of Gain 600 pounds514.220.86
Estimated Interest(Prime + 1%)36.52 
Resulting Breakeven1,660.74123.02
Current Texas Panhandle Cash1,675.35124.10
Net Profit / Loss14.611.08

 

 

Click here to "Check out the markets "
Click Here to send your comments