March 3, 2024

THE MARKETS

Trade has now occurred in all areas. In the south prices were mainly at $183 live and live sales in the north were $183-$184 — steady to $1 higher. Dressed sales so far this week have been light at $290 dressed or $2 lower than last week with many sellers passing $290 bids.

The fall out from the wildfires has been broad and devastating to many in the Texas Panhandle. Over a million acres have burned and while guesses about destruction to livestock is preliminary, many animals will need to re-locate and likely many have died. Fortunately the loss of human lives was minimal. Unforeseen repurcussions were felt in the area like higher grain prices because rail traffic from the north was suspended pending inspections of possible weaknesses in some rail footings.

This past week’s slaughter was 599,000 head 6,000 larger than the previous week and one of the smallest non holiday slaughter volumes in a long time. The slaughter was 27,000 under last year. Processors margins continued to struggle with box prices gaining ground but the improvement failed to match the necessary margin for a profit.

Cattle Futures. Futures moved higher on Friday as traders attempt to read and analyze the impact of the wildfires on the 12 million cattle located in the Texas Panhandle.

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 876# up 1# from prior week and 8# 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 up .4% at 84.40%.

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 Feature Activity Index.

The Cutout. Box prices were higher all week. A reduction in cow slaughter has pressured the grind while rib prices find a spring bottom. The choice/select spread is beginning to widen into the spring months.

Replacement markets

February placements into feedlots have picked up. Receipts are all livestock markets are up sharply from prior year and assure placement increases this month — a light placement month combined with an extra day because of leap year. Placements may move above last year’s weather impaired number in February but the pool available for March and beyond will be tight.

Springtime demand for stocker cattle will put pressure on all of the lighter offerings. Good moisture in all areas of beef production will stimulate broad demand for calves to graze. Some pasture operations are turning to larger animals as they hunt for inventory to fill spring and summer grazing needs. Calf prices are returning to last year’s highs. Competition for the smaller pool of calves will present increasing risk for pasture operations.

Market observers will begin to look for signs of a reduction in heifer placements on feed. This will signal the beginning of the herd rebuilding. Heifer retention also will reduce the calf pool available for grazing and growing. Conditions are now right for the rapid rebuilding of the nation’s cattle herd. The ommission of a breakdown by sex in the monthly COF reports is an oversight in need of correction.

Oklahoma City. —

Compared to last week: Feeder steers steady to 2.00 higher, over 850 lbs up to 5.00 higher. Feeder heifers 2.00-4.00 higher. Steer and heifer calves mostly steady. Demand very good for all classes. Last Friday’s Cattle on Feed report somewhat of a disappointment as January placements came in some 5-6 percent above the the estimate. Live cattle futures traded back in the green while feeder futures closed lower.
Quality average to attractive, but several cattle coming off wheat in medium to fleshy conditions. Spring like temperatures Monday and Tuesday, but we will quickly be reminded it is still winter come Wednesday with temps back in the 40’s. Supply included: 100% Feeder Cattle (59% Steers, 39% Heifers, 2% Bulls). Feeder cattle supply over 600 lbs was 67%.

OKC West  —

Compared to last week: Feeder steers sold 3.00-10.00 higher. Feeder heifers sold unevenly steady. Demand good. Steer calves under 550 lbs traded sharply higher, instances 14.00-32.00 higher. Supply included: 100% Feeder Cattle (43% Steers, 53% Heifers, 4% Bulls). Feeder cattle supply over 600 lbs was 43%.

Feeder Cattle Futures. Futures recovered ground on Friday. Speculation, that wildfires will flood the markets with cattle were likely overstated. The judgement of a flood of cattle on the market might be a hasty one. The disruption to cattle supplies will rest with moisture in the future and can not be determined now.

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 moved higher this week. Corn basis offerings in Guymon, Oklahoma are at $1.20 — basis the May contract.

THE TEXAS PANHANDLE

The devastation from the wildfires during the recent weather events has focused national and international attention on the Texas Panhandle and emphasized the importance of the area to the cattle industry. With 12 million cattle, it is the largest concentration of cattle in the nation and probably the world. It is said that within 250 miles of Amarillo, two thirds of all the nation’s beef is produced.

The story of the Texas Panhandle began in the 1870s when Mexican pastores or sheepherders traveled down the Canadian River from New Mexico. They established small villages called plazas where family groups would tend their flocks of sheep and endure the harsh winters and hot summers to live and thrive. It wasn’t long before pioneer Anglos like Charles Goodnight and George Littlefield found the value of the strong grasses and began to establish cattle grazing operations in the Panhandle.

By the late 1800s it was obvious the land needed surveys and fences and that meant capital. Few of the individuals had the capital so outsider English land companies entered the picture furnishing the capital to purchase the land and fund the development of fencing and windmills that served as infrastructure for a booming livestock industry. The Prairie Land and Cattle Company, a Scottish land company, occupied 250,000 acres of the central Texas Panhandle while they were soon overwhelmed when Texas awarded 3 million acres of the western Panhandle to the XIT syndicate to build a new State capitol in Austin.

Other outside investors, both domestic and foreign, wanted part of the west and furnished the capital to start many of the ranches existing in the Panhandle today. Their interest was fueled and popularized in the east coast media. The large newspapers sent professional photographers to the Panhandle to chronical the personal stories of people like Pat Garrett and Billy the Kid who frequented Tascosa, the popular town on the Canadian River and the R&R destination for hard working cowboys who were looking for love and adventure. Those stories were often about gunfights, whoreing, and killings that increased interest from outsiders to the area.

It soon became obvious that absentee ownership of the land was not a viable option. Rustlers stole many of their cattle — often in cahoots with cowboys working on the ranches. The English land companies who understood little of the vagaries of the area would overstock the land thinking adding more cattle each year was a recipe for multiplying the profits. Multi-year droughts soon caused them to liquidate the herds at distressed prices and this brought an opportunity for local entrepreneurs to make the purchases of land that would form the base for many of today’s ranches.

The Ogallala aquifer opened a new chapter in the development of the Panhandle and irrigation farms soon complemented the rangelands. This provided the perfect combination in the mid 1900s for the development of a commercial cattle feeding industry. The ready supply of cattle and grain brought the beef plants to the area and set the stage for the current configuration that today features an ideal synergy for beef production.

The Panhandle beef industry today still finds its strength in the foundation of ranches and farms feeding the constant demand for cattle into the system. The wildfires may have damaged the foundation, but it has not destroyed it. The land and its occupants are resilient and will re-emerge to serve the prominent role of a food supplier of the nation’s preferred protein.

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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