November 14, 2024
THE MARKETS
Last week’s paltry volume of sales was almost one half the previous week and this week is looking to be no better. Last week price ranges were wide with live sales from $184-$189 and dressed sales from $290-$298. Several things will happen with this type standoff. More transactions will go unreported using “over the tops” or dressed sales and slaughter volumes will fall to restore balance to the cutout.
Packers renewed $185 bids today in all regions but those bids were refused. Yesterday cattle owners in the south passed bids but some sellers in the north accepted $185 and $290 dressed bids. Volumes were light in trading as the week winds down.
The value of the dollar has been rising in relation to other world currencies. It is currently trading close to $1.06 after trading as low as $1.02 pre-election. The value of the dollar has a direct bearing on the cost of our beef to foreign buyers and the recent jump has increased the cost of our exported beef and at the same time made imported beef cheaper. Beef exports this year remain slightly below last year but have been strong relative to the high price. Beef imports have risen 20% as the value of our ground beef remains the bulwark of beef sales.
This past week’s slaughter was 619,000 up 4,000 from the previous week and 4,000 under last year. The choice cutout remains above last year although the cutout suffered material losses this past week. 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. Futures posted small losses in the front end. Packers are attempting to align the cash prices to the discounted December contract.
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 927# up 3# from prior week and 32# 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 1.0% higher at 81.80%. This was 2% 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.
The Cutout. The cutout was lower. The prices of primals will change moving into the holiday season. The grind will receive less attention and the middle meats will be more in demand.
Last week’s 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 they 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 jumped $20-$30 cwt.. October may show higher feedyard placements but those will quickly be followed by smaller November placements.
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. 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.
Compared to last week: Feeder steers 2.00-4.00 higher except 600-700lbs 10.00 higher. Feeder heifers steady to 2.00 higher. Steer and heifer calves 15.00-20.00 higher. Demand very good. Quality average. The rain last week has helped the wheat grow and the buyers to be more aggressive for calves. Supply included: 100% Feeder Cattle (60% Steers, 36% Heifers, 3% Bulls). Feeder cattle supply over 600 lbs was 53%
Compared to last week: Steer and heifer calves sold 3.00 to 10.00 higher on last week’s light test. Demand was good following recent rains. Cattle that are flagged as “Value Added” are part of the Red Angus Association sale. Supply included: 100% Feeder Cattle (49% Steers, 46% Heifers, 5% Bulls). Feeder cattle supply over 600 lbs was 35%
Feeder Cattle Futures. Feeder contracts were 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 were weak. Harvest is mostly complete. Crop yields are indicating new records. Corn basis levels in Guymon, Oklahoma are at $1.05 — basis the December contract.
SLICING AND DICING THE QUALITY GRADE
Cattle are fed longer and grade better today than 10 years ago. Part of the trend towards heavier carcass weights is genetics and part economics. The result is better quality grades with choice and prime dominating the beef turned out of the nation’s beef plants. Over 80% of all fed cattle fall into the choice or prime grade. Choice grade is the largest component to USDA graded beef and may have exceeded its usefulness.
Marbling is visually or camera assessed in the ribeye muscle at the 12th rib cross-section by a USDA grader. The more marbling present, the higher the expected eating quality of the beef. Reliable high quality products like Certified Angus require modest or higher marbling from the top two thirds of the choice grade. These cuts represent only around 8% of all the beef produced.
The purpose of grading is to provide the consumer with a consistent and reliable quality product but when 80% of the beef falls in this category, it might signal time for more strenuous criteria to further separate beef cuts. Color of the beef as well as age are highly corelated to taste and palatability. Cutability encourages muscle creation instead of exterior fat. New categories within the choice grade could be easily separated using the high resolution cameras and other electronic tools to probe the nature of the product.
The ultimate goal is a product designation that allows a consumer to return to the meat counter and select from a particular section that reliably fulfills their need for quality and price. If the labeling category is too broad, then too much variance is present in the offerings. There was a time not so long ago when choice and select were on equal footing for supplying the meat counter.
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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