March 25, 2025
THE MARKETS
The packers have few choices available except to shrink the slaughter volume. The open question is whether they can shrink it enough to change their leverage — first with the retailers then second the cattle owners. The show lists in all regions is lower this week assuring higher asking prices.
Live cattle sales last week in the south were mainly $210 while northern sales were $214-5. The spread is not really $5 when accounting for the many over the top transactions in the south. Dressed sales were mostly at $335. Packers increased the volume of purchases this past week while dropping the slaughter volume. All sales were $7-10 higher. Box prices worked higher but at an insufficient level to improve slaughter volumes.
USDA released the February 1 cattle on feed report widely expected to show double digit declines in placements and it showed a larger decline than forecast. This report begins a series of declines in the number of cattle on feed and will force price restructuring throughout the industry.
Processors slaughtered 560,000 cattle this past week down 24,000 from the previous week, and down 32,000 from last year. March is a transition month moving to hopefully improved demand for beef. Box prices firmed but processors lost ground with higher input cost of fed cattle. 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.
FEBRUARY 1 COF
Actual vs. pre-release estimates.
CATTLE ON FEED …………March……… 98……..98.2
PLACED DURING……….. February….. 82……..86
MARKETED DURING ….February……91……. 91.8
CATTLE FUTURES. A battle is developing between the fundamentalist and the technical traders. Futures established new life of contract highs last Friday only to fall by the close and the pattern was repeated again in early trading this week. Yesterday futures held on to strong gains all day until the last couple hours when prices fell to close lower for the day. The front end suffered more than the back months that were aided by a favorable placement number.
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 913# up 3# 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 up .5% at 85.30%. This was modestly higher than 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. 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. The cutout prices can change during the day. Weakness yesterday in the early trading turned positive by day end. This time of year the choice/select spread starts to widen.
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. 3 has replaced 2 for the first digit of most offerings of replacement cattle — excepting the heaviest offerings. Most four weights carry a price starting with a 4 and the lightest a 5. Some grazing programs are turning out 700# cattle for grazing assuring heavy placement this summer or fall.
Cattle trade in dollars per hundred weight. As those prices rise, so do the incremental amounts of change that once were reported in fractions of dollars but now in dollars. In today’s markets it is not unusual for a marketplace to report market price increases or declines in $5 cwt. and $10 cwt. increments. Part of the change is volatility and part an adjustment to the new price levels. Ultimately, the relevant fact will be the percent change from the previous price level.
The drought monitor continues to favor herd expansion but the rains never fall evenly across all regions. April will be critical towards starting summer grass pastures and spring crops. The current forecasts are all over the board with some calling for a dry spring and other reports trending towards normal rainfall.
Compared to last week: Feeder steers and steer calves 4.00-8.00 higher, 600-700 lbs to 15.00 higher. Feeder heifers 3.00-10.00 higher. Heifer calves 5.00-12.00 higher. Demand very good for all classes. A very bullish Cattle On Feed report last Friday, had cattle futures trading in the green early, but only to end the day in the red. Quality average, few attractive. Very dry, windy conditions continue but rain is in the
forecast for midweek. Southern parts of the state expected to see most of this moisture. Supply included: 100% Feeder Cattle (51% Steers, 47% Heifers, 2% Bulls). Feeder cattle supply over 600 lbs was 70%.
Feeder Cattle Futures. The feeder contracts were mixed with strength in the front end.
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 and wheat are weakening and trade issues and concerns are front and center. USDA reports will begin to form a structure for this spring’s planting acreage in upcoming reports. Corn acres are expected to increase by 3 million acres but trade policies could unravel the plans. Corn basis levels in Guymon, Oklahoma are at $.80 — basis the May contract.
RESTRUCTING PRICE IN THE BEEF SUPPLY CHAIN
Market prices between any transfer point in the beef supply chain can happen overnight and the reliability and sustainability of the price level must be filtered through the system before it is tested. Volatile transaction price levels in the weekly reporting are not uncommon but become more so as the volume of price points declines. The changes in price points become larger as prices increase and will follow the same path when they start to decline.
Fed prices have now pushed through historic highs and there is likely to be more to come. But the impact of price change is not completed or tested just between cattle feeders and processors. The fed prices send signals that are immediate to other sectors up and down the supply chain. The reaction to fed cattle price changes move quicker in the direction of the breeder and slower in the direction of the consumer.
In the live sector, other changes occur when prices escalate. Feedlots and stocker operators, looking for replacement cattle, are finding outrageous prices and are struggling to control input costs. The natural occurrence is a lowering of quality. Buyer agents are given the same orders but to fill the order they are compelled to lower the quality. All of the parties want the volume but when the volume is insufficient, the quality drops.
The movement of pricing from the processor towards the consumer is slower to develop and be tested. Like the live sector, much of the beef moving to the retailer is priced according to formulas that sometimes are slower moving than spot prices for beef cuts. Those prices will move higher but once a new price level is established in the retail market, changing those prices for consumers is slow to happen. Restaurants don’t like repricing their menus. Supermarkets don’t make decisions on the fly about meat features. Those features are sometimes done weeks in advance.
Ultimately, the vote that counts is the consumer. They will evaluate the new price, look at their meat options, and make the determination of how well beef fits into their household budget. This won’t happen overnight and meanwhile operators, up and down the beef chain, will find themselves at risk not knowing if the new level is sustainable.
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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