January 20, 2025
THE MARKETS
Frigid temperatures will be the feature focus for most feeding operations. Cattle owners will keep the attention on the cattle and be less concerned about marketing to start the week. Some were reminded of January past when snow and wind troubled feeding operations and cattle performance.
The market this past week was mostly steady to firm. Trading developed and continued in the south at $201. Northern live prices were $203-$206 steady with dressed prices at $322 — $2 higher.
Processors slaughtered 603,000 cattle this past week up 14,000 from the previous week, and down 2,000 from last year. Last year’s slaughter rates were impaired by winter storms. Box prices posted modest gains 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 prices were mixed to close the week. Hedgers are finding fewer speculative longs in next summer’s contract months. The fully hedged feeding operations are pricing today’s replacement cattle purchases a full $12 under today’s fed prices and mired in red ink.
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 930# up 7# from prior week and 28# 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 .8% at 83.10%. This was 1.4% 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 was flat at week’s close. Demand is proving to be solid as retailers restock from holiday beef purchases. The choice/select spread has narrowed as expected seasonally.
Replacement markets
The replacement markets are featuring low receipts at the auction markets and intense competition. Operations looking to background new inventory for both grazing and feeding are fighting for the small supply and driving prices higher beyond levels that will deliver a margin based on today’s futures forecast of prices. Cold weather is a feature in all cattle movements but it is wintertime.
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 above $200 with futures in the low $190s. 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.
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 still have time following the new year to develop grazing plans, but supply pools will be small and competitive. 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 and steer calves 6.00-12.00 higher. Feeder heifers 4.00-8.00 higher. Feeder cattle instances up to 15.00 higher. Heifer calves 10.00-13.00 higher. Steer and heifer calves instances up to 20.00 higher. Demand good. Most of Oklahoma received snow last week. The weather is forecasted to warm up but another cold front comes through on Saturday. Supply included: 100% Feeder
Cattle (60% Steers, 39% Heifers, 2% Bulls). Feeder cattle supply over 600 lbs was 62%
Compared to last week: Feeder steers sold 2.00-5.00 lower. Feeder heifers traded 3.00-6.00 higher. Demand moderate. Steer and heifer calves sold 10.00-15.00 higher. Demand good. Supply included: 100% Feeder Cattle (69% Steers, 29% Heifers, 2% Bulls). Feeder cattle supply over 600 lbs was 76%
Feeder Cattle Futures. Feeder contracts posted mixed results.
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 futures jumped higher to close the week. Basis levels are softening. The increase in corn prices will encourage more switching to wheat in feedlot rations. Corn basis levels in Guymon, Oklahoma are at $1.00 — basis the March contract.
ARE THE LIVE CATTLE FUTURES PRICING IN A BEEF PLANT CLOSURE?
Many things can occur to disrupt the cattle markets. Consumer demand could wane with higher prices. The economy could take a downward spiral. Bird flu in cattle could worsen. Trade wars could develop, but one unlikely development would be a sudden increase in the numbers of fed cattle available to the market. The January 1 inventory will likely show a further reduction in the national herd and heifer retention this year will directly impact cattle placements on feed.
Many smart people are looking at the cattle numbers and none would conclude the expected number of cattle to be marketed will be a cause of lower prices for fed cattle. So why are prices forecast in the future contract months for live cattle selling at a $10-$15 cwt. discount to current prices? The only logical reason is the market is pricing in a beef plant closure during this year.
It has not been good times for the beef plant operations. Small cow kills have created tough competition for fed supplies and cattle owners have stubbornly held cattle for higher prices. Most analysts are estimating $100-$150/head losses at the beef plants and few observers believe this will continue forever or even until the national herd is rebuilt. None of the big four meat packers are willing to give up marketshare and most have other operations in the meat or ag sector that can support losses at the beef plants. This leaves the most likely scenario as the closure of one of the independent beef plants.
Changing and reducing the number of kill slots competing for fed supplies will definitely improve the economics for the remaining plants. The likely recipient of harm will be cattle owners who will lose some of the pricing structure that overcapacity has provided to the entire beef chain. The margins at each level of beef production are constantly changing and the possibility of a closure has traders in the cattle futures wary of the stability of today’s prices into the future.
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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