June 21, 2021









Cash Cattle


Two weeks of larger slaughter volumes may be contributing to an improvement in the leverage of beef producers selling cattle to the processors. There is no question the trend is smaller placements and larger marketing numbers when compared to prior year. Asking prices for cattle in all regions will be higher to start the week.


Cattle sold this past week at $123-125 live and $195-197 dressed in the north. Quality grade was important in price determination with the choice/select spread at a historic high of $39 cwt.. In the south most sales were at $122. Sales prices for the first week in seven weeks were up by $2-3 cwt..


Forward contracts are part of weekly cattle sales. It is not unusual for producers to want to lock in either a price or a basis for future deliveries of cattle. With the uncertainty of future grain costs and a live cattle futures market that fails to reflect attractive values, forward contracting has slowed. Beef plants in the northwest depend on supplies from Canada. Canadian cattle normally sell discount to domestic U.S. cattle but currently they carry heavy premiums. Packers are reluctant to lock in large premium basis trades leaving gaps in future supplies from Canada.


Cattle Futures. Futures prices moved modestly higher as this week's sell off was overdone. Leadership in the establishment of pricing will switch between the cash markets and the futures depending on the views of the large funds that jump in and out of cattle futures.


The Comprehensive Fed Cattle Weekly Report offers the most current information on the current status of fed cattle being harvested. The report is published each Tuesday and includes the previous week's change in carcass weights and quality grading. The latest report shows carcass weights down 6# at 856#. Benchmarking weights against last year will be meaningless so we will discontinue the practice. Quality grade grading was down .9% at 81.80%.


Forward Cattle Contracts:  Forward contracts will always bear some relationship to the corresponding futures month closest to the delivery month for the cattle. Basis levels will move up and down as processors want to add to forward contracts or not. Sometimes the forward contracts are associated with forward sales of beef and sometimes not. Packers may simply try to add an extra margin for taking the price risk off the hands of the producer. 


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" where packers purchase cattle at $1-2 over the highest price paid in any given region.


The Cutout. Box prices continued to fall. The choice/select spread is $36 -- highest in history. Box prices remain historically extremely high and are expected to decline moving forward as high prices hit the supermarkets and beef suffers some demand destruction. The disconnect between cash cattle and box prices is expected to continue as the national herd declines and supplies of fed cattle shorten to a point where sharing of margins can be possible.


Pork prices are falling. Price losses in pork bellies is triggering a sell off in wholesale prices for pork. Pork producers have enjoyed participation with the processors in the recent run up. The threat of a court ruling slowing the chain speeds at pork plants hangs over the production side as an obstacle.




Choice CutoutChoice Price Change
321.20Down $2.08
Select CutoutSelect Price Change
281.46Down $2.15



Beef Feature Activity Index. There is always a lag between increases in wholesale beef prices and meat counter prices in the supermarkets. Likewise restaurants are always reluctant to revise menus frequently. Eventually all of the recent increase in box prices will work there way through the retail pricing and the full brunt of this spring's sharp increases will be felt by consumers. Fortunately, beef is not an isolated instance in the meat category. Pork has increased at a faster rate than beef and chicken has been increasing but not at the same rate as pork and beef. Beef features will be more selective and dependent of the fluctuation of the various cuts.



Replacement markets


The expected slowdown in placements has pressed an expanded feedlot capacity to fill empty pens. Shorter supplies of replacement cattle, both feeder and calf offerings, will hold the replacement market intact. We are entering a period when summer placements decline and most of the offerings are forward sales of cattle for next fall after the grazing season. Cattle owners use video auctions as a format for marketing forward sales. This year buyers of fall deliveries of cattle will be cautious of prices with uncertain grain prices.  


The premiums built into the feeder cattle futures have behaved as a mirage for the past year. Many believe this time will be different. Most of the deferred feeder contracts are priced in the $160s -- a full $20 cwt. higher than the current market. The declining supplies indicated for the next couple of years will trigger intense competition among feedlots to fill pens.


The drought areas have been reduced but the areas remaining in drought conditions are extremely severe. Herd liquidation is mandatory for some operations as all forage is exhausted. Fire hazards remain for many ranchers in the west. Heat advisories plague much of the western drought areas. 


Oklahoma City. -- Prices shot higher for all classes of cattle. Empty feedlot pens competed for smaller national supplies of cattle.


OKC West  --


Feeder Cattle Futures. Feeder futures were modestly lower.


Feeder Cattle Cash Index. The index is tracking the moves in cash prices.   


Forward cattle contracting. The premiums built into deferred feeder futures is appealing to many stocker operators, but capturing a tradable basis is more difficult. Feedlots, with much uncertainty about feed costs, are cautious establishing normalized basis bids. Basis levels for all replacement feeder cattle have been unusually wide.


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


Grain Futures. Old crop corn is not yet ready to turn lower. Deferred corn prices were lower in overnight trading Monday morning. The market is seeking a balance between short corn stocks, weather concerns and consideration of waiving the RFS mandates for some gasoline refiners. It won't be long before the USDA planting report, due the end of this month, is released expected to raise corn acreage. Corn basis prices at Guymon, Oklahoma is weak and under a dollar, as more feedlots move to wheat rations. Wheat in the Texas Panhandle is trading .70 over July.





A lesson learned many years ago is the impact of government benefit programs on employment. It is no surprise that when government benefits closely match wage loss, people will choose not to work. Democratic administrations ignore this simple fact while Republican administrations attempt to design benefit programs to encourage return to work.


The Biden administration’s $1.9 trillion dollar aid package has been full of unintended consequences of government programs run amok. When the program was passed by Congress and passed into law with the President’s signature, there remained almost a trillion dollars left over from the Trump administration to be distributed for Covid relief.  Add to that number, the additional hand outs, and the result is no surprise. No one is willing to work and everyone is flush with cash.


Current unemployment benefit programs require recipients to be actively seeking a job. This means people continue to apply for jobs, but evidence clearly points to the fact they are not serious about the job, because a large percentage of the applicants never show up for the interview. They only do enough to satisfy payment rules and nothing more. Several states are acknowledging the employment obstacles of government programs by canceling unemployment benefits and awarding with cash bonuses those finding and holding on to new jobs.


In American agriculture, jobs are difficult to fill even in the best of times. Experienced managers are reaching out like no time in recent history, looking to fill vacant jobs. They also are experiencing new and old employees who are job shopping constantly. No shows for daily work are common. Unions have gained an upper hand in the beef plants and some employees are barely trained for leaving for greener pastures.


Untrained warm bodies often contribute to lapses in quality work and more importantly, accidents.  The struggle to maintain a reliable workforce will propel the drive to automate the workplace. Sensors to read feed levels in the bunks will precede driverless GPS guided trucks in feed delivery. Drones will count the cattle and imaging systems will scan live animals for sickness. Food security is something that cannot be jeopardized by an inadequately staffed workforce.






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 Steer1,163.25150.10
Cost of Gain 600 pounds757.461.26
Estimated Interest(Prime + 1%)31.41 
Current Breakeven1,952.12144.05
Current Futures1,759.05130.30
Net Profit / Loss-193.07-13.75


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 ago1,035.00138.00
Cost of Gain 600 pounds668.171.11
Estimated Interest(Prime + 1%)23.91 
Resulting Breakeven1,727.08127.93
Current Texas Panhandle Cash1,646.73121.98
Net Profit / Loss-80.35-5.95



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