May 18, 2024

THE MARKETS

In the north cattle sold for $190 live and $300 dressed. Sales in the south were mainly $186. Prices were $2-4 higher, in all regions.

The large decline in cow slaughter this year has notched a permanent dent in the weekly slaughter. This week’s slaughter at 598,000 was down 24,000 from the previous week and down 46,000 head from last year. The fed cattle portion of the weekly slaughter lost ground from last week and last year but continues to make a larger percentage of the total slaughter than prior years with cow slaughter in a steep decline.

Cattle Futures. Futures were higher posting gains for most trading days this week. The spot June contract was selling at a steep discount to cash prices and as cash prices rise, catching up is necessary.

Benchmarking. On Tuesday of each week, USDA releases a weighted average price report for all cattle sold the previous week. The report summarizes the distributed price levels for each category of sale such as Negotiated/Formula/Forward Contracts. Beef producers are able to measure the marketing price for their cattle compared to the national averages.

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 at 889# up 2# from prior week and 31# heavier than last year. Carcass weights will be fundamental in determining total beef production. The combined steer and heifer weights can easily be influenced when the proportion of steers to heifers in the weekly slaughter changes. Quality grade was up .2% at 84.40%.

The Weekly Steer and Heifer Grading Report is indicative of regional supplies of choice and prime cattle and often is determinative of regional differences is live price. The report is also reflective of the current status of fed cattle offerings in each area.

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. The driver in forward purchases of cattle will always be forward sales of beef. Packers will always be willing to take a price risk off the producer’s plate in return for an extra margin. 

Formula and Negotiated Grids. The Price and Distribution Report delineates the various selling methods and net results. The Cattle Contracts Report details the percent of contracts by volume of cattle and by number of contracts for selling cattle. Formula selling that was once the largest marketing method and still is, but is losing ground to negotiated grids where the premiums and discounts are set but the base price is negotiated.

Beef Feature Activity Index.

Consumers are losing interest in premium beef products on the shelf at most supermarkets. The Never/Never antibiotic and hormone free high priced cuts are finding more difficulty in movement off the shelf. This in turn has forced mark downs for many of these products and threatened already thin margins. Wagu highly marbled steaks are also disappearing as consumers back away from luxury cuts.

The Cutout. Box prices continued higher posting the largest weekly gains of recent months. Packers made the first step towards improving margins as box prices jumped more than live cost of cattle. The choice/select spread that has held narrow for many weeks is beginning to widen.

Replacement markets

Feedlots are finding little relief from high priced feeders. Feedlots are pushing to fill empty pens as April placements fall dramatically from prior year. The competition for feeder cattle fails to dampen demand on those days when feeder futures fall and only increases prices when they rise. The offerings where buyers try to break the market a dollar or two are soon gone when buyers call back. The decision of whether to buy a known loser or leave the pens empty is the question before many feedyard operators.

Stocker operations are feeling the squeeze of high calf prices and thin to non-existent margins at the stocker level. Inputs into grazing opportunities like all inputs in inflationary times are on the rise and rising levels of expense for death loss, feed, medicine and care all add to higher production cost on the prairie. A volatile feeder futures contract provides little comfort to those wanting to limit the price risk. Operators might find a small profit one day turns into a loser the next. Basis levels are unreliable and forward contracting lacking.

The drought monitor continues to favor herd expansion but the rains never fall evenly across all regions. Floods in south Texas, tornadoes across the mid west and dry spots in the Texas Panhandle show the disparate weather patterns that always are part of agriculture. Cattle movements frequently reflect the grazing conditions of the origin locations. Gains have been generous on winter grazing areas that received plentiful rainfall and a mild winter.

Oklahoma City. —

Compared to last week: Feeder cattle and calves mostly steady. Demand moderate. Several large drafts of cattle available from graze off wheat or rye. Heavy rains moved across the state again over the weekend. Supply included: 100% Feeder Cattle (53% Steers, 46% Heifers, 1% Bulls). Feeder cattle supply over 600 lbs was 80%

OKC West  —

Compared to last week: Steer and heifer calves sold 3.00-6.00 higher. Demand good. Trade active. Heavy rainfall is in the forecast later in the week continuing to increase grazing demand. Supply included: 100% Feeder Cattle (56% Steers, 40% Heifers, 4% Bulls). Feeder cattle supply over 600 lbs was 40%

Feeder Cattle Futures. The feeder contracts posted gains to close the week.

The lack of liquidity in the feeder contract provides a perfect environment for prices to move too far in either direction. Poor liquidity leads to extreme volatility. Overdone directional price movements frequently require corrections and traders sense the vulnerability of the contract that needs to be cash settled but the contract index needs a redo.

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

Video and Internet Replacement Cattle Auctions. The movement from traditional private treaty sales to Internet auctions has been slow but steady. Producers have chosen this option as the primary marketing tool for most of the cattle offered in the replacement markets.

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

Grain Futures.  Corn prices leveled out. Planting is almost 50% complete. Good rains in the corn belt are setting the stage for favorable growning conditions. Corn basis offerings in Guymon, Oklahoma are at $1.40 — basis the July contract.

THE PRODUCTION ENVIRONMENT

Beef production has failed to decline as cow slaughter plummets and placements into the nation’s feedyards proceeds forward in steadily decline. The processors did pare the slaughter significantly this week to stop the hemorrhaging of money at the nation’s beef plants, but many of the recent weeks have featured larger head counts of fed cattle than in the prior year with many slots normally reserved for cows filled with fed cattle.

Total production has in large part been assisted by contra seasonal increases in slaughter weights. Slaughter weights have steadily held 25-30# over last year providing the basis for large weekly increases in beef production. Genetics has generally tended to increase harvest weights each year naturally but lower feed costs and high breakevens have joined the impetus for larger weights.

In normal cattle market environments, heavier weights will lead to a bad ending as heavier weights provide signals that producers are fighting the market and fed supplies are building at the feedlot level. This is not the current situation with each placement period restricting cattle feeders to a smaller pool of available cattle for placement into the feedyards. Cattle owners can feed cattle to a larger weight with less fear of fed numbers backing up. Those extra pounds are provided at a cost below the selling price of cattle.

The current production level has provided the retailers with enough product and sufficient margins to provide consumers some options for beef cuts. The grind has increased in popularity as inflation threatens many household budgets. The periods in front of us will present more difficult problems for retailers as production of beef declines and margins in the meat department depend more on alternative meats. The rationing of  beef is still in front of us and destine to arrive as heifers are held back for breeding.

CATTLE REPORT LIBRARY

Change is a necessity for any sustainable industry and sometimes necessary changes encounter obstacles in the form of stalwarts who refuse change. The Cattle Report has created a library page of opinions pieces published on these pages advocating fundamental and structure changes for the industry.

NOTE TO READERS

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

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. Most calculations are basis relevant prices in Guymon, Oklahoma.

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 180 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 are based on the USDA index price for 800# steers and fed cattle sales are $2 cwt. premium the appropriate futures contract.

CURRENT CLOSE OUT

The Cattle Report estimates current profit or loss on cattle placed on feed 180 days ago. This report generated from industry averages attempts to simulate a typical close out based on the feeder index for 800# steers 180 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.

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