November 20, 2024
THE MARKETS
Packers are entering the week with light inventories, but next week will be a holiday shortened week. Surprisingly, show lists were smaller this week despite small sales volumes last week. The relationship between cash sales volumes and show lists is an inexact science. Show list cattle that normally move in the cash markets can opt for grid sales or “over the tops” thereby removing them from cash transactions. Small sales volumes in the cash markets might just reflect the fact that sellers marketed their cattle in an alternative way.
Higher asking prices met only indications from packers they were willing to purchase cattle at steady money but sellers weren’t interested. Processors are running well ahead of last week for slaughter volumes following the lead of retailers who are ramping up inventories and pushing choice cuts higher. Sellers of fed cattle will be tougher traders this week as they sense a stronger position despite next week’s pared back slaughter volumes. Export demand remains strong despite a strong dollar and export sales were reported higher than last year.
This past week’s slaughter was 606,000 down 13,000 from the previous week and 33,000 under last year. The choice cutout remains above last year although the cutout has lost $15 in recent trading. 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.
PRE-RELEASE COF
CATTLE ON FEED November.....99.9.....99.5-100.1
PLACED DURING October....103.3....101.4-107.0
MARKETED DURING October....105.1....104.7-105.4
CATTLE FUTURES. Futures opened the week with two days of higher prices. Ideas are changing pointing to higher prices in the cash markets going into year end.
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 924# down 3# from prior week and 28# 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 .4% higher at 82.20%. This was 3% 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 attention of the market will turn to the middle meats as the holiday season approaches. Beef features will be highlighted by the ribs that will be popular for holiday fare.
The Cutout. The choice cutout jumped higher as demand improved from retailers who want to increase inventories for the holidays. The grind will receive less attention and the middle meats will be more in demand.
Recent losses were mainly driven by losses of value in the chucks. The end meats have fluctuated with the price of the grind. The chuck and rounds are sometimes used to shore up supplies of lean meat used for hamburger packages. Quality grade becomes unimportant because the lean meat is combined with varying percentages of fat. The recent increase in the choice/select spread will provide some margin improvement opportunities for processors.
Replacement markets
Rainy weather slowed movement of cattle to market and many auction markets reported light receipts. The rains may have slowed receipts in many areas but the rains jumpstarted prices for light cattle. This follows a heavy feedlot placement month in October when winter grazing conditions were uncertain. Many two way cattle were placed on feed. The recent rains to the wheat belt will slow feedyard placements and delay placement of many lighter weights until spring. Light weight calves have undergone a sea change in prices.
The mix of calf sales by sex is undergoing a modest change reflecting some evidence of heifer retention for breeding. The 42% of the first half of the year has been replaced by a 38% during the second half. The increase in breeding stock occurs from retained heifers by breeders and also by purchased heifers for breeding by those interested in increasing breeders for resale. Barometers other than feedyard placements can indicate heifer retention such as the swap spread or difference between the price a breeder receives for cull cows vs. the price he pays for breeder heifers. Traders also watch the price difference between feeder heifers sold per pound and bred heifers sold by the head at the same weight.
The drought monitor continues to favor herd expansion but the rains never fall evenly across all regions. Broad areas of the plains received welcomed moisture. Many grazing areas will still have time following the rains to see additional growth on the wheat fields. Grazing opportunities have a major impact on feedlot placements but the pool of cattle available for both grazing and feeding continues to decline. News outlets often lag the moisture reports. Drought reports were featured in the news for Oklahoma as rains were covering the area.
Compared to last week: Feeder steers and heifers mostly steady. Steer and heifer calves over 450 lbs steady; under 450 lbs 10.00 higher. Quality plain to average, few attractive. Demand good. Rain continued across the state on Monday. Feeder cattle futures traded in the green today again Monday following a sharp rise late last week. Supply included: 100% Feeder Cattle (58% Steers, 37% Heifers, 5% Bulls, 0%
Dairy/Beef Heifers). Feeder cattle supply over 600 lbs was 39%.
Compared to last week Steer and heifer calves sold fully 8.00-12.00 higher. Demand good to very good especially for weaned calves. Heavy rainfall over the weekend and first part of the week has helped. The Oklahoma Quality Beef Network had their annual sale and these cattle are tagged as Value Added do to multiple rounds of shots and long weaned. Supply included: 100% Feeder Cattle (57% Steers, 39% Heifers,
5% Bulls). Feeder cattle supply over 600 lbs was 35%
Feeder Cattle Futures. Feeder contracts were higher as short supplies and grazing opportunities pushed the cash markets higher. The futures were chasing the index that is moving higher by the day.
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 softened at mid week. There is much uncertainty about trade policy under the new administration. The early tough talk on tariffs may be posturing or may be real. Corn basis levels in Guymon, Oklahoma are at $1.05 — basis the December contract.
PLAN B
Those in the beef business are operating in many differing markets at the same time. The fluctuations in price points of the various inputs directly influence the outcome of their investment. It is possible that all the markets move favorably to your individual position, but those occurrences are rare. It also is possible all factors move against your position and many operators had this feeling this past week.
Widespread rains opened grazing opportunities in many areas of the country creating a sharp demand for a dwindling supply of replacement cattle. Many of the prices jumped up to $30 cwt. in Oklahoma and the price jumps were not limited to light cattle. Feeder cattle also jumped as grass movements slowed and two-way offerings keep buyers on the defensive.
This follows a move in the corn market that took corn from under $4 up to $4.25/bushel. This was accompanied by statements from those on the Federal Reserve Board warning that interest rate declines may be over, and the 10 year treasury bond jumped to 4.5%. These market movements occurred amid a $5 cwt. recent decline in the price of fed cattle. This will push many close outs into the red for cattle feeders.
Dealing with squeezed margins is not new to those operating in the livestock space. Coming up with a new plan for dealing with the situation is always difficult, but usually the passage of time sorts out the possible solutions. Most of these markets adjust with their unique characteristics and spikes up and down are not unusual. Usually, sharp spikes are followed by periods of calming with corrections to the over-reactions. The $30 cwt. jump in calf prices is likely to be followed by some decisions that some wheat fields might go unstocked, and crop yields might be helped without grazing this year.
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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