October 11, 2022
CATTLE MARKET REPORT AND ANALYSIS
Cattle owners faced with continuing and progressively higher feed cost will press for more price improvement in the cash trade this week. Meanwhile, economic and war fears roiled the markets including cattle as futures prices fell. It is likely most trading will be delayed until mid to late week as bid/ask spreads widen.
Last week packers added a few cattle in the north late Friday reaching $150 in Iowa. Sales in the south were mostly at $144-144.50. Live sales in the north for the week were mainly at $145-150. Dressed sales were mostly at $229-232.
The shaky state of the economy continues to serve as a negative backdrop for the cattle complex. Respected business leaders are going public with expectations of a recession. The mid-term elections loom large on the horizon.
Slaughter volumes for this past week were 664,000 head — flat from the previous week and up only 7,000 head from last year. Slaughter volumes for the past two months have exceeded prior year each week but gains are slowing as this year’s numbers decline. Saturday slaughter volumes have moderated and are an important control point for processors as they regulate supplies to stabilize prices.
Cattle Futures. Futures prices fell as selling spilled over from other markets.
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 up 2# at 885#. Weights are 7# over prior 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 .8% at 78.8%. Heavier cattle with fewer days on feed have held quality grades lower.
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.
The total number of forward contracted cattle has declined as deferred futures fail to provide sellers a profit margin for feeding. This will provide more liquidity to the cash markets as packers are pushed into the spot market for more of their weekly slaughter needs. The spread between futures and proforma break-even prices has made it difficult for packers to negotiate forward contracts.
The Cutout. The cutout was lower in early week trading. The choice/select spread widened to over $30. Processing margins have narrowed, and packers will be looking for ways to improve their position.
Beef Feature Activity Index. Price competition will determine the role of beef in marketing plans for the balance of this year. The pricing of various cuts is undergoing change with hamburger moving higher in retail stores and the middle meats moving lower. Features will focus on the differential between steaks and hamburger with swings of displays moving between the two cuts. The upcoming holiday marketing period will find more demand for steaks and middle meat roasts.
Replacement markets
The vulnerability of replacement cattle price to two factors beyond the control of the cattle owner, was obvious these past couple weeks. As smaller supplies of the replacement cattle are felt in the market, supply alone will not determine price. The past two weeks have witnessed weather and grain prices as major factors in price determination for stocker and feeder cattle. The nation’s corn crop is now in the midst of harvest and the price is sky high from any historical perspective. Early August rains in the southern plains promised bountiful winter grazing and caused a surge in calf prices. Currently the combination of high feed cost and returning drought in the southern plains is causing a reset in replacement prices.
Placement patterns will once again be interrupted by weather. Winter grazing opportunities have been curtailed by dry weather and pasture placements will be erratic this year. This will push many cattle into grow yards and offerings next spring will be tilted towards warmed up cattle that never feed as efficiently as green cattle off wheat fields.
October is a month when many calves are sold — both weaned and unweaned. It also is a month of temperature extremes when measuring daily highs to daily lows. Those health variables provide the background for discovery of pricing differences between weaned and unweaned offerings. Currently the spread on a 500# calf is $20-25 cwt.. Breeders are in a position to capitalize on this spread because their cost to wean is not $100-$125/head.
Oklahoma City. — Prices were $1-3 lower.
OKC West —
Feeder Cattle Futures. Feeder futures were sharply lower as grain prices surge.
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 softer in front of tomorrow’s USDA corn yield estimate. Traders look for the yield to fall to 172 bushels. The harvest is now 30% complete. Basis levels are firm as diesel prices rise. Current basis offerings in Guymon, Oklahoma is $1.90 over the December contract. Dealers are beginning to offer OND new crop corn at $2.00 over the December contract basis Guymon.
CALIFORNIA’S REGULATORY POWER GRAB
California is busy training “Certifying Agents” charged with the responsibility of scurrying around the United States inspecting pork facilities to assure they comply with California’s standards for production. Meanwhile the Supreme Court will hear arguments this coming week about whether California bureaucrats should have control over out of state production facilities. Known as the “bacon case” this case can have broad implications for all American agriculture. (“NATIONAL PORK PRODUCERS COUNCIL V. ROSS”)
California passed a law in 2018 attempting to regulate pig farming nationwide. Known as Proposition 12, the law dictated that no pork be sold in California unless it complied with California rules for pork production. Out of state farmers must certify they have followed California rules and regulations to sell their products in the State where 99% of the pork is imported. This aggressive action smacks of arrogance and Big Brother.
This ignores the fact that many pork producing states have their own laws regarding carefully developed husbandry laws setting forth proper regulations for animal welfare and human health. Standards governing the proper care and well being of animals is common practice in many animal raising states where local legislatures better understand the animals and the local environment. These best management practices result in attention to biosecurity, disease prevention, animal morbidity, food safety, and other germane matters important to the delivery of affordable food supply for consumers.
For California to dictate to the nation, production standards and practices to sell their meat in the State, is wrongheaded. Allowing California Certifying agents to enter production facilities across the nation, announced and unannounced, is a recipe for disaster. U.S. meat producers would be better off eliminating California meat sales, as large a hit as it would be, rather than concede this national regulatory power grab.
JOB POSTING
Our friends at the Agcenter, the host of this publication, have allowed us to show a job posting from their private listings. If there is sufficient response from the many readers of this publication, job posting could become a featured link in THE CATTLE REPORT.
Management level job posting by Texas Beef – an integrated cattle company with two feedyards in the northern Texas Panhandle.
CATTLE REPORT LIBRARY
Below are links to articles published in the Cattle Report pertaining to industry change. Two important changes are on the table for progress — supply chain management and animal ID. Both applications will transform and disrupt the industry.
THE Beef Blockchain Slide Show
The Case for National ID for Cattle
Reforming the Futures Contract and Cash Trading of Cattle
NOTE TO READERS
Sections of the newsletter are redesigned with hyperlinks to the appropriate source pages. The hyperlinks are in light blue within the report.
FURTHER NOTES AND 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.
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 150 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 and fed cattle sales are par the appropriate futures contract.
CURRENT CLOSE OUT
The Cattle Report estimates current profit or loss on cattle placed on feed 150 days ago. This report generated from industry averages attempts to simulate a typical close out based on prevailing purchase prices for a feeder steer 150 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.