October 4, 2024
THE MARKETS
The few reported transactions so far this week have been spotty and inconclusive but in spots higher. In Texas and Kansas, cattle traded for $186 live — $1 higher. In Iowa live cattle traded at $187, $1 higher than the bulk of last week. Nebraska dressed trades were reported at $296 – $2 higher. All volumes were light and packers will need more inventory today.
The positive margins of August and early September at the beef plants have disappeared and been replaced with negative margins Week’s end resulted in some positive news for processors as box prices responded to improved demand for beef by moving sharply higher. This past week’s slaughter was 611,000 down 1,000 from the previous week and 16,000 under last year. The fed cattle portion of the weekly slaughter continues to make a larger percentage of the total slaughter than prior years with cow slaughter of both dairy and beef cows in decline.
Cattle Futures. The futures were higher with the higher cash markets and cutout. The futures are now flatlined with today’s cash and forecasting flat prices through April of next year.
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 913# down 3# from prior week and 29# 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 .4% at 82.70%. This was 4% over last year.
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.
The story of the cutout has been the strength in the grind. The 90% grind has dominated the value of the cutout, joined by good demand for the 81% and the 50%. Over half of all beef sold is from the grind. The reduction in the cow slaughter has provided a foundation for this strength, but as the season’s change, the grind is seen as toppy and has declined in all of the blends.
The Cutout. Box prices were sharply higher. The choice cutout moved back above $300. Box prices seem to be finding support at these levels.
A longer term trend is developing the relationship between choice and select cuts. Cheaper feed and high replacement costs has encouraged cattle owners to feed cattle longer. The result has been a consistent improvement in quality grade in the nation’s beef plants. The percent of cattle grading choice or better has been rising 2-4% over last year narrowing the choice/select spread in the carcass cutout. The spread has hovered at half of last year’s spread.
Replacement markets
Cash prices for replacement cattle have remained stubbornly strong. Receipts are major markets are well under last year pressuring cash prices higher. Higher grain is now threatening any additional gains in replacement costs. The cash market has shown some divisions with light calves remaining strong and yearling lagging behind futures. Cattle movements will be increasing during the next two months as many cattle move off of summer grass into the feedyard and many calves are weaned and headed for winter grazing locations.
Summer gains across the high plains on native grass is often difficult to predict. Many factors impact daily rate of gains on yearlings or calves and moisture is only one. Conditions can be too wet and, if rains never stop all season, the grass becomes washy and gains are often disappointing. Warm dry periods to the naked eye appear to harm the grass and make it brown, but they can produce the correct maturing process and record optimum gains. Preliminary results this year are indicating an excellent year for gains on native grass and cattle moving to the feedyard are generally heavier than usual.
The percentage of new crop calves that are weaned increases each year. Producers have discovered that weaning in place delivers more value to the producer than accepting the discount at the marketplace. Because a large amount of calves come from small herds, some breeders are not equiped with labor or facilities to carry on weaning support systems. Prices are sufficiently high that many just want to cash in the calves and move on. Likely to develop soon will be new vaccines making weaning easier and less stressful to the animals.
The drought monitor continues to favor herd expansion but the rains never fall evenly across all regions. This time of year it is important to receive adequate rains to further progress the wheat belt where planting is complete. Wheat grazing is always a factor and availability will help temper and determine the level of feedyard placements. More light cattle will be placed in feedyards this year with lower feed cost and sometimes feedlot gain cost will differ little from grazing cost on wheat fields.
Compared to last week: Feeder steers and steer calves 3.00-8.00 higher. Feeder heifers over 800lbs 5.00 higher. Feeder heifers under 800lbs unevenly steady. Heifer calves 3.00-8.00 higher. Demand good. Quality improved from last week and contributed to the higher market. Supply included: 100% Feeder Cattle (58% Steers, 38% Heifers, 3% Bulls). Feeder cattle supply over 600 lbs was 62%
Compared to last week: Steer and heifer calves that were weaned sold steady to 4.00 higher. Demand moderate. Fall has arrived bringing new crop calves to town. Supply included: 100% Feeder Cattle (45% Steers, 0% Dairy Steers, 52% Heifers, 3% Bulls). Feeder cattle supply over 600 lbs was 27%
Feeder Cattle Futures. Feeder contracts were higher.
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. Grains were weak to close the week. The recent rally caused by hot dry weather thought to harm crop yields is actually being reported as helpful to yields. Harvest is completed in many areas and moving north. Measurement of crop yields will begin to be estimated by private sources. Corn basis levels in Guymon, Oklahoma are at $.90 — basis the December contract.
TRACEABILITY UNDONE
USDA is barely a month away from implementing mandatory RFID on all animals above the age of 18 months crossing state lines. Exceptions, including owner shipper statements, commuter herds, and for cattle going to slaughter, do not require EID tags. This is the first step in mandating RFID for all cattle. This shouldn’t come as a surprise because the industry has been on notice of the event for some time. What is a surprise is the livestock industry’s continuing failure to act by presenting an industry-controlled plan for ID setting the rules, the tag designations, and establishing the database owned and operated by an industry governing board charged with protecting the privacy rights of cattle owners.
Top honors in fault will be NCBA, the national organization, whose leadership was totally absent on the issue. Despite broad support from all the beef processors, most of the large feeding companies, most of the large breeders, NCBA allowed a small vocal membership, threatening to withdraw from membership, to avoid addressing the issue. Complicit in the lapse are the state organizations who failed to place this issue at the top of their agenda.
The fallout will be the chaos in the industry as individuals struggle with a government run system that is flawed in design and destined to fail. The implementation will cause needless pain and financial hardship to individual operations forced to comply with an unworkable system. The major flaws are:
- Approved RFID tags. Currently USDA has accepted LF [low frequency] and soon is expected to approve UHF [ultra high frequency] tags and others may qualify for approval if they are machine readable. Different RFID tags require different readers. Few operations will be willing to accommodate multiple tag readers as ID becomes more ingrained in production environments. The only workable solution is one designated tag on all livestock leaving the option to transition to an improved tag when tested and available.
- Tag issuers. Currently there are approved tag issuers but unclear pathways to recording premise to premise moves by the animals. They are few guidelines for cost containment and while USDA will fund some of the costs, other costs are born by the commercial handlers of the cattle. Livestock markets are under no obligation to be approved tag issuers resulting in late day calls to approved vets who will charge for their time.
- Record keeping. USDA envisions paperwork or CVIs [Certificate of Veterinarian Inspection] to be produced manually. This means a load of dairy/beef cattle shipping across state lines will have a piece of paper showing origin and destination and include hand written animal numbers found on the outside of the RFID tag. This would require someone to manually read the numbers off the electronic tag and write them on a piece of paper – an impossible task and guaranteed to create errors. A simple electronic record can be created to be read on any smart phone to serve as the paperwork on the shipment.
- Readers. Some operations will want to read the electronic tags and incorporate the information into tracking for animal performance information. They will be unwilling to inventory multiple readers and even commonly used tags like the LF ones will differ with some full duplex and others half duplex and some readers not reading both.
- Numbering scheme. Blocks of tag numbers are assigned to AIN Device Managers who then assign those blocks to premises ID numbers. ISO numbers are an international standard requiring numbers relating to the tag source. Device Managers will be responsible for premise management.
- Disease traceback. Disease traceback is a noble and necessary justification for animal ID but premise tracking is required. There is no clear path to track changes in premise following the initial movement. Moreover, bonus use of RFID tags like performance tracking, animal theft protection, title security, and inventory control are missing from this plan.
- Penalties. The burden is on the shipper of cattle across state lines. The shipper must have the CVI in order or will be subject to penalty and fines. It is unclear whether inspection stations can force cattle to be unloaded and the EID numbers verified.
A valid animal ID plan must mandate all cattle of all ages be tagged with ONE standard tag to be used by all participants in the beef pipeline. One scanner can read and report data to a national animal datastore where rules and regulations can be drafted by an industry lead governing board.
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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