November 17, 2017



BOC Loan






Cash Cattle.


Today's cattle on feed report will set the tone for trading next week. Packer purchases this week were light but so is the slaughter plan for next week. The holidays are officially starting and next week's trading will be compressed into an early week event. Most live trading this week was between $119-120. Dressed sales were mainly at $189-190.


Pork prices have jumped 16% higher in the past month and now turned lower with the cattle. The analysis points to increased competition from new start up pork plants. At the same time pork prices have jumped, packer margins have declined. The beef business needs the same type new processing capacity in order to assure a healthy competitive marketplace for fed cattle.


Cattle Futures. Futures prices were modestly lower.      


Carcass weights are released each Thursday 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 November 4th, had steer carcass weights were up 1# at 902# which is 11# under prior year. Heifers were 8# under last year but there are more heifers in the mix lending to lower overall weights. Watching carcass weights change by week and looking for the seasonal peak is a function of winter weather. Winter weather thoughout the plains this year has been cold but dry. It is the wet winter weather that impedes cattle performance and there are few signs of trouble -- YET. Carcass weights normally top in October but reached their peak in November last year. 


Forward Cattle Contracts: December cattle were purchased from Par to $2 back with several thousand cattle at each level. January cattle traded mostly at $-1 to Feb futures on 14,000 head.   15,000 head traded at par in Feb off the Feb 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. Box prices softened as the holiday season approaches. The spread between choice and select has skyrocketed in the past few weeks. The move has been from $9 to almost $20.


Recalibration of the cameras will be carefully assessed by the beef trade through the end of the year. Kansas has seen a dramatic 10% drop in percent of cattle grading choice. This has occurred in the past month. Calibrating the cameras assisting quality grade determinations is tricky business and executing changes of this magnitude will have disruptive impacts on box trades both formula and spot.


Beef Feature Activity Index. Beef specials serve as drawing cards into the stores and are profit centers. This new link provides perspective on the level of feature activity week by week in the country.


Cutout Values as of Thursday, November 16, 2017
Choice CutoutChoice Price Change
210.24Up $0.11
Select CutoutSelect Price Change
187.83Down $2.78
Choice/Select Spread

Replacement markets


Replacement cost will be vulnerable to a price decline with several factors impacting price direction. Weakness in the fed cattle prices will discourage some buyers looking to spring prices that are fading. Feeder cattle are selling $30 cwt. higher than last year and breakeven now are moving into the high $120 for spring. The historical spreads between feeder cattle and fed prices are always a useful barometer for measuring unrestrained optimism. Currently the spreads are unusually wide posing a risk that the spread will close and return to a more normalized number.


Dry weather is putting the breaks on calf prices and this week signals lower demand on the buy side as many operators run out of locations for winter grazing and attention turns to accommodating the current inventory on hand. There is little in the way of moisture forecasts for the southern plains and we are entering a critical period for salvaging winter grazing in some areas.


High risk sale barn offerings are reaching the largest volumes of the year and buyers are discounting the price based on health risks. The price differential between a 650# steer yearling [$165] and a 650# calf [$145] is large but is it enough? Only time and weather will determine the outcome and purchasing decision made now. A 10% death loss and a $50/head medicine bill will put the calf underwater against the yearling. This gives no value to the time spent doctoring the cattle.


Oklahoma City. Feeder steers were $3 lower as cattle receipts and lower fed prices overwhelm the market. Calf prices are holding steady especially for weaned offerings. Cattle movements are increasing with both the OKC and OKC West auctions receiving heavy runs.  


Feeder futures. Futures prices were softer.     


Feeder Cattle Cash Index. The index now will recalibrate and track prices for the November contract.       


Forward cattle contracting. Feedlots are featuring out front purchases for March through May at discounts to the board prices varying from Par to $3 under depending on location and delivery point. January feeder contracts are carrying a large basis discount because of the sharp discount in the June live contract.


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


Corn futuresCorn prices have declined but the reaction in the corn trade was for farmers to stop selling. Two conditions exist to stop selling of corn. The carry from December into the March contract is large and farmers are unwilling to sell on the current low market. Second, the price decline has caused many corn owners to lock the bins and await better markets. The impact on the basis has been to add 3 cents to the basis for each penny the corn falls. Farmer reluctance to sell has jumped the basis to 75 over the December board or mostly 65 over the March board in Guymon, Oklahoma. Corn is now pricing into rations at $7.00 cwt. in the Oklahoma Panhandle.


There are some long term issues reflected in the latest USDA crop report. USDA is forecasting more corn acres planted this spring. It also is lending authority to the continuing expansion of corn crop yields as new corn varieties are introduced and genetic improvement make their mark on the size of the crop. All forecast are dependent on weather but in a normalized weather pattern of rainfall, continuing large crops are a contradiction to the economics of today's farming outcomes. There is little argument over the lack of profitability of $3.50/bushel corn. Understanding what would encourage more corn acreage is puzzling and all farmers know that if the inventories continue to build the corn will at some point be forced to market. The current rise in the basis has caused some feedlots to switch to wheat.






One prominent analyst group pegged the loss of purchasing a feeder steer at prevailing market prices and calculating feeding and interest cost into a spring breakeven. The margin on this transaction was a negative $71/head. Many feeders proceed forward with little thought to the loss -- hoping that the cash market exceeds future's expectations. Other operators running fully hedged operations either drop out or wait to hedge. Of course, purchasing without regard or respect for the consensus opinion expressed by the futures market will eventually doom a feeding operation.


Processors, aided by their size and market share, play this out differently. When they are faced with negative margins, they simply pare back the slaughter to the point they raise box prices and back feedyard inventories up and regain market leverage. It is not like they collude with each other but they act in unison much like the airlines when they raise or lower fares together. The competitive advantage of one packer over another is not wide enough to allow one to grow profitably while the others lose money.


This publication receives email comments regularly mentioning the inaccuracy of our forward breakeven programs. The fact is that all the commenters are correct and any attempt at a generic breakeven is doomed to error. Each region of the country has varying input costs that make it impossible to provide a national breakeven. The feeder offerings differ both in quality and freight requirements. The grain basis from region to region is vastly different as is the weather. Each region projects off unique inputs resulting in wide variance in margins. This is ignoring the obvious fact that many of those projections will in the final analysis be wrong.


All of the regional differences in inputs are frequently overshadowed by buyer differences. Individual judgments regarding value can not be reduced to science or data studies. The cattle feeder in the Dakotas that last week purchase some high quality native steers weighting 850# at $185 would be a stark contrast to the Texas cattle feeder placing 800# Brahmin crossbred steers on feed at $155. Each buyer might view the other's purchase as crazy and both might be right.


Players come and go in the cattle industry. Some mistakenly enter the business with the belief feedyard operations can consistently place cattle on feed and with a fully protected position, lock in $50/head margins. Many of those operators never seem to stay long. Others believe the answer is a sophisticated risk manager and this certainly is true if such an animal exists. Risk managers also seem to come and go. Bottom line is the notion that the survivors are generally those with good sound production facilities and practices, good herd health and competitive buying and selling departments, not those who can outguess the market.






Below are links to articles published in the Cattle Report pertaining to industry change.


The Case for National ID for Cattle


Reforming the Futures Contract and Cash Trading of Cattle


Australia and Distributed Ledgers


Blockchains and Smart Contracts




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 Steer1,183.35157.78
Cost of Gain 600 pounds444.690.74
Estimated Interest(Prime + 1%)32.75 
Current Breakeven1,655.31122.62
Current Futures1,587.60117.60
Net Profit / Loss-67.71-5.02


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 ago1,155.00154.00
Cost of Gain 600 pounds492.970.82
Estimated Interest(Prime + 1%)27.36 
Resulting Breakeven1,675.33124.10
Current Texas Panhandle Cash1,668.60123.60
Net Profit / Loss-6.73-0.50



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