October 15, 2024
THE MARKETS
A broad commodity sell off Tuesday took grain, oil and cattle lower. Fed supplies will not increase moving towards year end. This occurred in the face of rising box prices. Show lists are smaller again this week. Last week’s pared back slaughter, along with improving demand, helped the box market. Slaughter volumnes this week will move higher. Cattle owners are facing rising breakeven price points making them less willing to make concessions on price. Asking prices are higher with little interest from packers early week because of last week’s larger sales volumes.
Packers were forced to buy at $1 higher prices this past week after buying a few cattle steady earlier in the week. Northern live sales were mostly steady to one higher at $187-$188 while dressed prices were mainly $296 — steady with the previous week. In the south live sales were mainly $187 — $1 higher.
Feed costs will be an important component of production costs in the coming year and harvest will end earlier than usual becuase of hot dry weather. The crop and yields are beginning to show favorable signs of a bumper crop. Corn has enjoyed a recent rally but is now faltering in the face of a large harvest and is for chart followers is nearing a support point that could send it even lower.
The positive margins of August and early September at the beef plants have disappeared and been replaced with negative margins, although processing margins improved this week with help from rising box prices influenced by improvement in middle meat prices. This past week’s slaughter was 586,000 down 25,000 from the previous week and 30,000 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 sharply lower with most contracts losing $1-2.
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 912# down 1# 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 down .8% 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 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. The choice cutout posted a gain to open the week. A smaller slaughter and increasing demand supported the increases. The choice/select spread is half of last year’s number.
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 at major markets are well under last year pressuring cash prices higher. The cash market has shown some sharp divisions with weaned calves gaining ground on unweaned calves and premium program cattle suffering losses. Consumers are backing away from high priced branded beef. Yearlings are now gaining ground in price after falling below last year. 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, but the numbers are all smaller.
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 additional rain to further progress for wheat grazing. The plains has been specially dry the past two weeks and some early planted grain fields will require more moisture. 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 heifers steady to 2.00 higher. Steer and heifer calves 2.00-6.00 lower. Demand moderate to good. Quality average. Most cattle off the grass with condition in the buyer’s favor. The Oklahoma heat has finally broken for this week, lows will dip into the 30s. Most of Oklahoma is under some type of drought condition. Supply included: 100% Feeder Cattle (60% Steers, 35%
Heifers, 5% Bulls). Feeder cattle supply over 600 lbs was 45%.
Feeder Cattle Futures. Feeder contracts were sharply 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. Grains were sharply lower as harvest pressures are mounting on both the basis and futures. Harvest is proceeding in full force with many areas with the southern plains mostly completed. 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.
POLEMICS
We hear a lot about the polarized news media and the failure of news outlets to provide objective news stories. The channels seem to align themselves with like thinking viewers or readers and everyone adjusts their listening or reading habits with what they believe to be true.
Judging from emails received by this blog, we do not have visitors to our site that are all of one mind. We receive regular critical comments – some polite and others not so polite. Fortunately for the blog, if someone is mad enough to stop dropping in, they are replaced by two people who find something of interest. The blog has increased unique readers every year since the start 17 years ago.
It is helpful for us to stop every now and then and explain the mission of this site. We are, first of all, advocates for beef. We believe beef should be an important part of every diet. We next are advocates for changes in the industry that we believe could make it better. We believe there are many health reasons for increasing the role of beef in diet and that removing cattle from the planet is a bad idea. We believe in transforming the production of beef into a more cost efficient and risk accepting vehicle. We believe all this should occur within the framework of free markets and less government interference.
We feel passionately about mandatory animal identification, reform of the futures contracts to cash settle, and exposing the flaws in scientific studies impugning the value of beef in the diet. Our views often attract attacks from readers who disagree with us. We welcome their views. We can be flat out wrong in either our facts or our views of expected trends that are developing. We also sometimes carry satire a bit too far or poke fun at people who we believe take themselves too seriously.
We encourage controversy. We enjoy harsh criticism and will always attempt to respond with honesty and logic but recognize some differences may go unresolved. We also find sometimes differing opinions presented to us are meritorious and we change our views. Controversy is good for a business, an industry and a country. Change never occurs among people who all think the same.
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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