April 22, 2018                                  



BOC Loan




Cash Cattle.


Packers finished their purchases on Friday with lower cash prices for live cattle carrying mud in the north and higher dressed prices in the same areas. Live sales for the week were mainly $119-124 [the high in Nebraska late Friday] and dressed prices $193-195. This completes the second week in a row of higher cash prices. April historically and seasonally is the month of market highs. Normally, April is the trigger for spring beef demand to kick in but this year, the pattern has been disrupted by sharply lower futures prices likely tied to fears of the trade wars.


The commercial shorts, hedgers, are having a hay day. Last year they thought it couldn't get any better, but now it has. With little over a week to expiration, the April contract is selling $3-5 under cash. Remember packers can't fill their inventory needs with futures and an expanding weekly slaughter of 624,000 this week will keep packers active in the cash markets.


For unhedged cattle owners the current cash is insufficient to bail out the feeder cattle placed 150 days ago. Feeder cattle weighing 800# were selling in the high $150s last fall pushing the breakevens into the mid to high $120s. Cheaper grain in the north has been offset by wet cold weather this winter.


Cattle owners are looking beyond the expiring April live cattle at the June contract selling $20 under the top price paid this week. Some feel this overestimates first the size of the wall of cattle to come and second the price impact of larger numbers. This is partially confirmed by the sales of some cattle into the May period at $120. The monthly cattle on feed report was on target with pre-release estimates.


Cattle Futures. Futures posted a rally in the front end as traders see Thursday's sell off as overdone.     


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 March 31st, had steer carcass weights were steady at 872# which is 20# above the past year. Heifers were 9# over prior year with more heifers in the mix.


Forward Cattle Contracts: Packer purchases into the forward months are limited to May. Most of the cattle are reported in the current cash trade as reported by mandatory price reporting services. 


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 cutout was higher at week's end. The expanded slaughter volume is being met with a surge in demand for beef. Larger numbers of cattle each spring are generally accompanied by improved demand as temperatures warm and beef eating increases.


Beef Feature Activity Index. Beef features are often planned months in advance. Retailers look at the pricing of live cattle futures for signals of product availability and price. 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, April 19, 2018
Choice CutoutChoice Price Change
211.34Down $0.79
Select CutoutSelect Price Change
198.48Down $1.10
Choice/Select Spread


Replacement markets


USDA's monthly COF report confirmed the slow down in monthly placements during March. Smaller supplies of replacement cattle are expected to continue through May as many wheat fields were abandoned early. 


Market prices for replacement cattle was mixed last week. Earlier signs of improvement was dashed by week's end when video sales trended lower. There are interesting comparisons of prices this year to prior year.  A 750# yearling brought approximately $146 this year on the southern plains compared to $143 last year. A fed steer sold for $122 compared to $131 last year.


Oklahoma City. Prices were steady to $3 higher as receipts increased for the weekly auction sale.       


Feeder futures. Futures in the front months moved higher. Feedlots are wary of May cattle at the current price levels.                    


Feeder Cattle Cash Index. The cash index will track for the settlement of the April contract that is currently trading par to cash prices.       


Forward cattle contracting. Much of the spring contracting has now concluded and some feedlots are looking at summer offerings and establishing basis trades of the August and September boards. Discounts to the board prices varying from Par to $3 under depending on location, quality and delivery point. 


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


Corn futuresCorn prices were softer in late week trading. The choice of crops for spring planting is nearing and more interest in corn is developing. Planting intentions may reverse earlier choices. The basis, currently at 45 over the May board in Guymon, Oklahoma. Corn is now pricing into rations at $7.75 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          April           107            107.6      107.0-108.2
PLACED DURING           March            91             90.9        87.8-94.5
MARKETED DURING         March            96             96.0        94.5-97.0





For the unhedged cattle owner, the spring/early summer period does not look like opportunity time with breakevens in the mid $120s and the summer live cattle contracts hovering just over a dollar. But for beef retailers, the picture is entirely different. They look at the $20 break in cattle prices as an opportunity to widen margins and move more beef with store special beef features.


Beef has long held the role of the number one food option for drawing consumers into the store. Beef features over the years have headlined ad compaigns and those features have meant not only increased sales of beef but also increased sales of all grocery items. While grocery ads are in the process of migrating from newspaper to digital advertising on the web, the beef ads still play a prominent role in spring beef demand.


The weather is already warming in many areas and the outdoor grilling season is upon us. The feature season changes slightly the demand for certain primal cuts. Steaks prop up the prices for loins and rounds are often ground into hamburger. Briskets are always poplular this time of year. The grilling season usually peaks with the 4th of July.


One tell-tell sign of increased interest from the retailers is the out front purchases for delivery in 60-90 days. These out front purchases have been running 10-20% over prior year and are a good indication of planned beef features. Retailers are similar to packers buying in the cash markets. They can't put cattle futures contracts on the meat counter. They must purchase the beef in the open cash markets and packers won't sell forward based on futures but instead will sell forward based on how they can purchase live cattle in the cash markets [the basis]. The $120 forward bought May cattle are a far cry from the $104 level of the June futures. Retailers can purchase forward but they are subject to the same basis levels as the packer.


Retailers won't forget pork and poultry even though they play a secondary role in the spring meat features. Pork of late has staged a rally in price. The issue for the cattle markets is whether the kick in of spring demand can deal with the expected increase in cattle supplies. Exports also loom in the background as another safety value for excess supplies of cattle. Each year is a constant reminder of the unique market conditions each year that make market forecast so difficult.








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





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 Steer1,039.73138.63
Cost of Gain 600 pounds459.700.77
Estimated Interest(Prime + 1%)29.63 
Current Breakeven1,523.39112.84
Current Futures1,460.03108.15
Net Profit / Loss-63.36-4.69


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 ago1,185.00158.00
Cost of Gain 600 pounds472.060.79
Estimated Interest(Prime + 1%)27.74 
Resulting Breakeven1,684.80124.80
Current Texas Panhandle Cash1,597.46118.33
Net Profit / Loss-87.34-6.47



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