February 22, 2025
THE MARKETS
Sales in Texas and Kansas were at $199 while most live sales in the north were at $200. Dressed sales in the north were mainly $315. Live prices have fallen $3-4 this week while dressed sales are $5 lower. Feelings are developing that both live and beef prices are searching for a bottom. Live prices have fallen $10 and packers are regaining leverage with three weeks of extremely small slaughter volumes.
Processors slaughtered 563,000 cattle this past week up 2,000 from the previous week, and down 27,000 from last year. This is the third week of sharply lower slaughter volumes. Last year’s slaughter rates were impaired by winter storms and this year’s reduction by lost demand for beef. Box prices softened this past week while processing margins made some recovery with cash prices falling faster than the cutout. 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.
FEBRUARY 1 COF
ACTUAL NUMBERS VS. PRE-RELEASE ESTIMATES
CATTLE ON FEED:…. February…….99…….. 99.3
PLACED DURING….. January……..102……103.0
MARKETED DURING January…….101…..102.2
CATTLE FUTURES. Prices stabilized in front of a neutral COF report.
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 929# up 10# from prior week and 52# 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 up .3% at 83.60%. This was flat with 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 searching for a bottom as movement among the various primal cuts rotates the interest or retailers who are searching the right mix. The difficulty has been aligning the cost from the cash market for live cattle to a new price level for the retailer. Retailers never seem sensitive to the plight of the processors losing money.
Replacement markets
The weakness in cash prices for replacement cattle always seems inadequate to buyers who are sensing margin pressures. Mexican cattle import began and will play catch up for a few weeks. Receipts at auction markets will slow as weather halts some shipments. The demand side has weakened as some producers choose to opt out of new purchases and leave pastures or pens empty rather than risk large losses on new inventory.
Big picture items are on the minds of many producers. Focus on tax policy, immigration deportation, trade policy, and other relevant hot spots driving the ag economy have yet to be defined or are in the process of being defined. These issues join the front and center issue of declining numbers of cattle that will not go away in the near term future. Middle of the beef chain operations will be forced to pare back while breeders expand and profit. Feed cost will face challenges as corn returns to $5. Interest rates are an unknown and many lenders are wary of squeezed margins on those along the beef chain.
The drought monitor continues to favor herd expansion but the rains never fall evenly across all regions. Broad areas of the plains have received welcomed moisture, but dry areas remain in the west. Many grazing areas will watch developing pasture opportunities as spring moves closer and winter pastures respond. The state of forage holds the answer to many questions on producers minds. Grazing opportunities have a major impact on feedlot placements but the pool of cattle available for both grazing and feeding continues to decline.
Compared to last week: All classes of feeder cattle and calves were lightly tested but a steady to firm undertone was noted. Demand good on limited receipts due to bad weather. A strong winter storm is in the forecast for the rest of the week. Slaughter Cows and bulls were to lightly tested for a trend. Supply included: 100% Feeder Cattle (57% Steers, 41% Heifers, 2% Bulls). Feeder cattle supply over 600 lbs was 75%.
Winter storm.
Feeder Cattle Futures. The feeder contracts were higher as grain prices fell.
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 to close the week. Corn basis levels in Guymon, Oklahoma are at $.90 — basis the March contract.
THE UGLY PROFILE OF THE BEEF SUPPLY CHAIN
No one expected the processors of beef to continue slaughtering 600,000 head of cattle a week losing $200/head. The only option they have is to rebalance by trimming the kill. Instead they have slashed the kill to the lowest non-holiday number in years for two weeks in a row. The impact of these two drops in the slaughter volume was a surprising decline in the cutout – not a good sign for demand in the beef supply chain.
Given that February is never a banner month for beef demand. The weakest demand of the year usually occurs prior to the spring warm up in weather that kickstarts improved demand for beef as the cookout season begins. In the meantime, the middle meats suffer and the generally high prices of beef, when compared to other meat options, turns consumers away to favor cheaper options.
This is happening during a period of rebuilding of the national herd and is accompanied by two new beef plants waiting in the wings to open – one in West Platt, Nebraska and one in Wright City, Missouri. The four largest beef packers are staying the course and not expected to close a plant. Chances are good that the odds of a new plant opening is smaller than the likelihood of a current plant closing. Look to one or more of the independent plants across the country to shut down.
The untenable situation in processing is accompanied by a dire picture in the feeding sector. Sky high replacement prices guarantee impossible breakevens for middle operators in the live sector. It is hard to imagine a sustainable margin when the benchmark for breakeven is well north of $200. Much of the current price level is subsidized by losses at the beef plants. Relying on cash prices for fed cattle to reach the next level up are unrealistic. It doesn’t help that trade wars may interrupt our export markets lending more fuel to the fire.
The retailers and restauranteurs are also unlikely to play a role of the white knight in the supply chain problem. They are the strongest party in the supply chain to ignore the plight of the rest of the chain and the easiest to refuse to participate in the pain [red ink]. They can simply rebalance the meat mix on the shelf and concentrate on meat margins from the other meats. The prospect of 2025 is not bright for beef – expect less product and higher prices causing all in the supply chain to suffer.
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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