December 20, 2024
THE MARKETS
The Fed announcements of a pause in lowering interest rates, rumors of ICE raids on the beef plants, and nervousness over bird flu have all combined to send futures lower while cash prices firm. A few more cattle traded in the north at $195-$197 and $305-$307 dressed. These prices were spots higher with cattle owners passing most steady bids. Packers have purchased very few cattle this week but next week will be a short slaughter week.
Processors slaughtered 609,000 cattle this past week down 5,000 from the previous week. This week’s slaughter was 38,000 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.
COF December 1
CATTLE ON FEED.......December..100...99.9
PLACED DURING........November...96...95.9
MARKETED DURING......November...99..98.2 CATTLE FUTURES. Futures prices rebounded to close the week. Some traders are speculating on the possibility a new administration might initiate ICE raids on the beef plants, but insiders view this as unlikely.
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 917# up 3# from prior week and 11# 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 .3% lower at 81.80%. 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 cutout is for spot loads of beef and the volumes are often light. This can cause extreme volatility. Choice cuts were sharply higher. Holiday demand was good but retailers are now purchasing for a post holiday period when there will be less interest in the middle meats.
Replacement markets
The replacement markets will enter a quiet period for the next two weeks. Markets are closing on a high note with record prices for a dwindling supply of cattle. New grazing opportunities and improvements in the cash prices for fed cattle have help propel the replacement markets higher. The jump in calf prices has caused some operators to opt out of this year’s stocker program and take cattle in for grazing. Squeezed margins at the stocker level have opened negotiated pricing for the grazing that is running from .65 cents to .85 cents with care sometimes included and sometimes not.
Competition for stocker cattle has been accompanied by similar results at the feedyard placement level. Cattle feeders are now looking at breakevens from $190-$200 with futures in the mid $180s. This coming year will continue price pressures on the beef supply chain with only the breeders finding improved margins of profitability. The competitive environment will leave some pens empty.
Imports of cattle from both Mexico and Canada are factors in our stocker and feeder supplies. The discovery of a screwworm cash in Chiapas, a Mexican state bordering Guatemala has caused a disruption and temperary closing of the border. This anxiety is joined with unclear plans for tariffs on imported cattle from Mexico. The implications to re-establishing normal flows from Mexico is not a huge number but is enough to impact prices in a time of dwindling inventories. Mexico crosses around 100,000 head a month to the U.S. and we are at the tail end of the largest volume seasonally. Border officials promise a restoration of normal crossings by year end.
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 5.00-10.00 higher, over 800 lbs not fully established. Feeder heifers fully steady. Steer calves 8.00-13.00 higher. Heifer calves steady. Demand good. Quality average few fancy drafts. Flesh conditions from average to fleshy, few thin. Weather warm and dry for the season. Supply included: 100% Feeder Cattle (55% Steers, 41% Heifers, 4% Bulls). Feeder cattle supply over 600 lbs was 40%
Compared to last week: Steer and heifer calves sold fully 5.00-7.00 higher, instances as much as 10.00 higher. Demand good. Cooler temperatures are in the forecast later in the week. Supply included: 100% Feeder Cattle (52% Steers, 38% Heifers, 9% Bulls). Feeder cattle supply over 600 lbs was 23%
Feeder Cattle Futures. Feeder contracts moved lower.
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 firmed. Grain dealers are now pricing off the March contract. Corn has moved from the high $3 levels to $4.40 where it has found a ceiling and has difficulty breaking through to the upside. The barrier is early estimates of more corn acreage this coming spring. Corn basis levels in Guymon, Oklahoma are at $1.10 — basis the March contract.
CASH PRICES MAKE ANOTHER RUN AT $2
The number of cattle slaughtered each week remains well below prior years. Primarily responsible for the decline has been the cow slaughter that has surprised many because the fall run of cows to market has been quite low. $4 calves make it especially difficult to take cull a cow from service.
The shortfall in cows has been met with increased numbers from the fed cattle market and increased the weights on the fed cattle brought to market. On feed numbers have remained near year-old figures, but turnover has slowed as cattle owners add more pounds to the current inventory, attempting to lower breakevens and put off the purchase of high-priced replacement cattle.
Two dollars ($200 cwt.) has been a ceiling for fed cattle prices. Eight-hundred-pound feeder steer purchased 6 months ago require the mid $190s to return their investment and the breakevens are working higher by year end. Many cattle owners will produce cattle requiring near $2 level prices to break even. The market will never pay attention to what a producer needs to breakeven, but it will be on many minds both for now and well into next year as producers purchase new feeder cattle that will all require at least $2 for a breakeven.
The factors that will offer the promise of breaking out of the ceiling on prices will be beef demand and slaughter capacity. If the processors are forced by the small cow slaughter to hold the weekly slaughter above 600,000 into the new year, then the pressure on fed prices may allow pushing through the $2 ceiling. The negatives will be beef imports. Currently the value of the dollar is rising, and this will encourage more imports and discourage more exports. A wild card will be the new trade policies proposed by the Trump administration.
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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