October 1, 2022
CATTLE MARKET REPORT AND ANALYSIS
Cash sales for cattle were steady this past week in all regions. In the south, cattle continued to trade at $143. In the north, live prices were $145-147 while dressed prices were $228-233 — also steady. Packers were pleased to add to volumes at steady prices and even extended firmer prices for some cattle towards week’s end. The market this year has benefited from an increase in the volumes of cash cattle each week as forward cattle contracting has declined.
Rumors of $150 bids in the north for mid-October offerings expressed a positive bullish view of the market. The processors always seem to have a better handle on upcoming numbers of cattle ready for harvest than the people owning the cattle. Packers took advantage of declining futures to hold this week’s cash prices steady. The last two weeks is indicating a desire of the packers to boost their owned inventory in anticipation of shorter numbers to come.
Quality grading is lagging well below last year with some indication cattle are being pulled greener than last year. Choice and prime cattle nationally are some 5% under last year causing the choice/select spread to widen seasonally. The spread normally narrows following Labor day then widens for the holiday season.
Slaughter volumes for this past week were 664,000 head — down 3000 head from the previous week and up 24,000 from last year. Slaughter volumes for the past two months have exceeded prior year each week. Saturday slaughter volumes have moderated and are an important control point for processors as they regulate supplies to stabilize prices.
Cattle Futures. Bullish news from the cash markets couldn’t overcome the negative bets by traders selling short expecting a recession. Futures prices closed the week with a major set back for prices.
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 down 3# at 883#. Weights are 5# over prior 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 down .1% at 78.0%. Cattle appear to be pulled greener but are heavier because of incoming weights.
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.
The total number of forward contracted cattle has declined as deferred futures fail to provide sellers a profit margin for feeding. This will provide more liquidity to the cash markets as packers are pushed into the spot market for more of their weekly slaughter needs. The spread between futures and proforma break-even prices has made it difficult for packers to negotiate forward contracts.
The Cutout. The choice cutout was lower to close the week. Processing margins are reduced but remain sufficient to assure a healthy slaughter number. Processors need to be selective to fill choice and prime forward sales but selective in a time of dwindling numbers is not always possible.
Beef Feature Activity Index. Price competition will determine the role of beef in marketing plans for the balance of this year. The pricing of various cuts is undergoing change with hamburger moving higher in retail stores and the middle meats moving lower. Features will focus on the differential between steaks and hamburger with swings of displays moving between the two cuts. The upcoming holiday marketing period will find more demand for steaks and middle meat roasts.
Replacement markets
The vulnerability of replacement cattle price to two factors beyond the control of the cattle owner was obvious this past couple weeks. As smaller supplies of the replacement cattle are felt in the market, supply alone will not determine price. The past two weeks have witnessed weather and grain prices as major factors in price determination for stocker and feeder cattle. The nation’s corn crop is now in the midst of harvest and the price is sky high from any historical perspective. Early August rains in the southern plains promised bountiful winter grazing and caused a surge in calf prices. Currently the combination of high feed cost and returning drought in the southern plains is causing a reset in replacement prices.
The entire year has witnessed large premium prices for the deferred feeder cattle futures contracts. Those expectations were realistically built on the numbers of available cattle in the future determined by simple mathematical analysis. The large anticipatory premiums in the deferred futures prices have largely disappeared as expectations for future prices are lowered and feed cost show no signs of relief.
Oklahoma City. — Feeder cattle were $4-6 lower while calves fell $10-15 cwt. lower.
OKC West — Prices for all classes were sharply lower. The heady prices for $200+ calves has been trimmed $25 cwt. in some cases.
Feeder Cattle Futures. Feeder futures posted large losses to close the week.
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. The USDA corn stocks report shed 150 million bushels from the previous estimate leaving new estimates at 1.375 billion bushels. Corn prices shot higher. The harvest is now 15% complete with some reports in some areas of better than expected yields. Basis levels are softening. Current basis offerings in Guymon, Oklahoma is $1.90 over the December contract. Dealers are beginning to offer OND new crop corn at $1.80 over the December contract basis Guymon.
notes from all over
The long delayed bull market is cattle prices is once again put on hold. In a never ending serious of unexpected events, the bull market for cattle is again subject to the possibility or probability of a recession. Having endured the Tyson fire, three years of Covid, and now a major economic downturn, cattle owners are tempted to give up. But as all experienced participants in the industry know, things rarely play out as the experts forecast so always expect the unexpected.
ITS THE ECONOMY STUPID
The attempt by Democrats to change the subject to abortion or more hearings on January 6th, will be a doubtful strategy for winning the mid-term elections. Among most Americans, the item at the top of their concerns is the Economy. They are ready to be persuaded to vote for the candidates offering a solution to the dire impact of inflation and the possibility of an impending recession.
Nothing is more critical to agriculture than global economic conditions. The beef industry depends on beef exports and high employment at home to fuel the demand for the beef products produced by the industry. The price necessary to restore the live sector to good health demands a healthy economy. Inflationary pressures will challenge consumers to continue to purchase a beef product burdened with high priced feed and an interest bill that currently is running $50/head in the feedlot.
Most respected businesspeople and economists do not expect a soft landing. You can’t stop inflation without enduring pain. The surfeit of cash dispensed by the Biden administration fueled demand for all goods and services pressuring the supply chain and raising prices. To buy votes and curry favor, the administration’s approach to solving all economic problems was to infuse cash. Now must come the time to pay the piper.
The U.S. dollar is the reserve currency for the world and in times of economic turmoil, the flight to the safety of the dollar is apparent. This condition has taken the dollar to record heights and now makes our exports more expensive and our imports cheaper. This increases the likelihood that beef imports will increase, and beef exports will decrease – not favorable for beef prices.
Macro-trading systems are betting on a downturn for commodity prices and expecting the recession to bring down demand for all commodity. Fortunately, all commodities is a broad term and buyers may elect not to purchase some commodities, but food remains a necessity. Dampening demand will play against dwindling cattle numbers leaving no one in a position to provide a thoughtful forecast on price. One thing is for certain – a reversal of the current control of Congress is the only positive election option for all Americans.
JOB POSTING
Our friends at the Agcenter, the host of this publication, have allowed us to show a job posting from their private listings. If there is sufficient response from the many readers of this publication, job posting could become a featured link in THE CATTLE REPORT.
Management level job posting by Texas Beef – an integrated cattle company with two feedyards in the northern Texas Panhandle.
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 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.
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.