APRIL 3, 2025
THE MARKETS
President Trump recipical tariff plan is shaking the markets this morning. Mexico and Canada seem to have escaped harm for livestock and beef. Australia is penalized with tariffs on imported beef into the U.S. and that is positive for the cattle markets. The uncertainty of how all of this will play out is on the mind of all investors in our economy. The uncertainty is spillover into the cattle futures. Bids of $208 are being passed in Texas and Kansas.
Processors slaughtered 609,000 cattle this past week up a whopping 49,000 from the previous week, and also up 27,000 from last year. This is the largest slaughter of the past two months and was absorbed easily by the retail trade whose purchases took box prices $7-10 higher for the week. This week was a win for processors who lowered production cost with the larger slaughter, held cash prices mostly steady, and enjoyed rising prices on box sales. 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. The shortfall of the cow slaughter has kept packers pulling from the fed cattle population to put together weekly slaughter needs.
NOTES FROM ALL OVER
The April Fools day post on AI drew a lot of interest. AI is not a joke or pretend. It will have board applications in the beef industry both in analyzing data and searching for answers to industry problems that have long plagued efficient operations.
CATTLE FUTURES. This week’s have rallied for a couple days probably on leaked information of tariffs on Australian beef. Watch for volatility today as the market absorbs a potentially higher cash market and the fall out from the tariff announcements.
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 915# flat with prior week and 30# heavier than last year. Last year severe weather harmed cattle performance and diminished carcass weights. 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 85.70%. The current grading hovers 1% 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.
Beef demand is coming mostly from the grind that represents almost half of all beef sold. Published reports show hamburger to be not only the most popular item on the meat counter but also the fastest growing. Winter weather pushes consumers to end meats and roasts and historically a spring warm up triggers demand for the middle meats and cook outs. The daily fluctuations of the primals represents seasonal changes and consumer preferences caused by pricing.
The Cutout. Box prices fell as recent gains must be tested in the stores. Signals to the market are indicating broad support from retailers for beef cuts but repricing on the meat counter is necessary.
Replacement markets
High prices always improve volumes of cattle offered for sale. April is the time of year when summer pastures load up and feedlots refill as fall placements sell to the processors. Feedlots are beginning to understand the plight of the processors as replacement prices reach levels far short of price expectations expressed by the futures contracts for late year. The most appropriate adjective for the replacement trade has been “scrambling” as buying interest has propelled field reps to all points in the country attempting to line up spring needs.
Summer grazing is upon us. Stocker operators looking to furnish calves for summer grass are finding short supplies. The available offerings are sky high in price taking much of the incentive to graze away unless the operator is willing to bet on larger price increases next fall. Enter two way cattle. These historically have been 500# and 600# cattle placed on grass to return to the feedlot weighing 800+. This year some operators are purchasing 700# animals for summer grazing promising to return them weighing 900# to the feedyard.
The drought monitor continues to favor herd expansion but the rains never fall evenly across all regions. Computer modeling of weather patterns are done by several services and as AI programs interpret the data, those models will compete for accuracy. Currently European weather models compete with our own models and sometimes those models differ. April will be critical towards starting summer grass pastures and spring crops in the plains.
Compared to last week: Feeder steers and steer calves steady to 5.00 lower. Feeder heifers and heifer calves steady to 5.00 higher except 500 -700lbs 1.00-5.00 lower. Demand moderate to good. Quality average. Rain is forecasted for later in the week. CME feeder cattle are trading lower. Supply included: 100% Feeder Cattle (52% Steers, 45% Heifers, 2% Bulls). Feeder cattle supply over 600 lbs was 69%
Compared to last week: Steer and heifer calves traded 5.00-100 higher. Demand remains good. Rain is in the forecast for later in the week and weekend. Supply included: 100% Feeder Cattle (47% Steers, 43% Heifers, 9% Bulls). Feeder cattle supply over 600 lbs was 27%
Feeder Cattle Futures. The 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. Corn moved lower. Corn basis levels in Guymon, Oklahoma are at $.80 — basis the May contract.
LIVING WITH UNCERTAINTY
Those operating in the ag space are no strangers to taking risks. It is second nature, and most carefully laid plans are often subverted by unexpected changes. Assessing and measuring those risks is part of everyday business and those successfully managing the risks survive and those that don’t fall by the wayside.
Cattle operations deal with weather risks, price risks, basis risks, interest rate risks, health risks, feed cost risks, and reputational risks. Our assessments of each of those risks can materially impact the outcome. The variances from the original forecast when cattle are purchased require constant tweaking as the cattle proceed to finish. Some variances can be harmful enough to upset the apple cart. Fortunately, the direction of some risks can turn favorable but all risks require constant vigilance.
Today’s operating environment has something new in the mix, uncertainty. Uncertainty involves a broad array of outcomes that are either unknown or unknowable. President Trump makes statements like: “I have good news for our ranchers and farmers. They can now raise more beef and sell it to American consumers.” Hidden within this statement is confusion. Good news for beef producers is larger margins. Bad news is the loss of our export markets that are necessary to the current structure and without which beef prices will fall.
Tariffs and trade policy are at the heart of our industry infrastructure. Disrupting the structure of trade can roil the markets. In today’s political world, It is impossible for operators to know where trade policy and tariffs are going or how new policies will impact the markets. The President makes daily statements posturing our future with threats and bluffs. The repercussions of some of those threats are unknown. Political signals to the industry should be accompanied by a well laid map of where trade policy is going for our industry. Chaos in the marketplace is good for noone.
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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