March 28, 2023
CATTLE MARKET REPORT AND ANALYSIS
MARKETS
Anticipation for higher prices this week is built into the start of the week. The futures market supported that proposition with one of the largest gains in recent trading session especially in the feeder contracts. Cattle owners revised their thoughts on pricing and packers left the market alone hoping Monday was a one day surge.
Winter storms have taken their toll on performance in the northern plains. Cattle owners have moved some cattle early just to avoid wet muddy pens and other operators have moved marketing dates forward into summer from spring dates. This condition is obvious from the recent bifurcated market between north and south and is likely to continue and enlarge the price differential between north and south.
Live sales for last week were $1 lower in the south at $163 and $1-2 higher in the north at $165-166. Dressed sales were mostly $1 higher at $265.
Economic issues still matter and trade talk was full of observations about the impact of various inputs to the economy like interest rates, consumer demand, and changing eating patterns. A close eye will be focused on planting intentions from the USDA report this Friday.
The slaughter this past week was 626,000 down 5,000 from the prior week and down a whopping 31,000 from last year. The cow slaughter has a direct and major impact on slaughter numbers as it declines from last year. The decline percentage in fed cattle slaughter is much smaller than the cows. Carcass weights remain below last year further reducing beef tonnage.
Cattle Futures. Futures rallied with all months posting triple digit gains. April remained well below this week’s expected cash prices.
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 864# down 2# from prior week and 20# lower 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 fell .8% at 84.3%.
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. Choice box prices were firm to open the week. Higher priced cuts and special beef programs are finding some consumer resistance.
Beef Feature Activity Index. Most retailers are planning fewer beef features this spring — anticipating smaller supplies of beef this spring. Pricing of the various cuts in the carcass mix will undergo a change. Retailers will continually change pricing to achieve a marketing balance that moves each cut at a timely pace. Recessionary pressures will also impact marketing decisions by retailers for meat features.
Replacement markets
Stocker operations are changing placement weights on grazing cattle. The nosebleed levels of many light cattle is pushing buyers to heavier weights that will be market ready quicker. Interest rate’s increases are raising the cost of carrying forward inventory. The replacement pool for all classes of cattle is smaller — pressuring middle operators to shorten the pasture period. The lightest high quality calves are now reaching $3/pound. This week the largest gains in prices occurred with 600# steers suitable for grazing.
As we move towards springtime grazing options and opportunities, moisture will dictate the direction of prices and demand. Summer grazing on the grasslands of the southern plains will depend on spring rains and an area from Amarillo, Texas north to Ulysses, Kansas remains in a drought. Saying goodbye to La Nina and welcoming El Nino is on the heart and minds of many operations in this area.
Oklahoma City. — All prices were three to five dollars higher.
OKC West —
Feeder Cattle Futures. Futures prices were sharply higher with the May contract posting gains of around $4.
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 higher along with most commodities. Chinese purchases of corn during the past couple of weeks has surprised some traders. All eyes will be on this week’s USDA planting intentions on March 31st. The deferred corn contracts are selling at discounts warning producers not to hold on to current inventories. Current basis offerings in Guymon, Oklahoma are $1.50 for corn basis the March contract.
CONFUSION IN THE MARKETPLACE
The are times when reading the market signals are straight forward and market price direction apparent. This is not one of those times. When the fall out from a troubled Swiss bank sends live cattle futures sharply lower, it is obvious unanticipated events outside our industry can move the market and upset the best market analysis available.
There have always existed vulnerabilities from the outside and for those of us within the industry who try to make sense of it all, blaming negative news or downward price pressures on outside forces is always a convenient scapegoat. There are always those times when human reason is insufficient to decode price moves. Sometimes what worries us all is those moving the market are aware of something of which we have no knowledge.
What’s exciting about a market is the fact that it is never over – always unfolding, always developing and always continuing. The puzzle of April, the expected seasonal high, is just as we are getting close, with few signs of weakness, the market falls two weeks in a row. We never really find out the answer, we are always in the process of finding out.
The futures market that refused to lead this year has just finished leading the market downward. Without the recent crash in futures prices, it is doubtful the string of weekly gains would have been broken. The fundamentals are positive – smaller numbers, less tonnage from lighter carcass weights. There remain some negatives like a recession or plummeting pork prices, but overall, a positive outlook.
The two sectors of the beef pipeline that have been most successful in maintaining margins are processing and retail. Despite improved leverage at the live animal sector, packers are able to hold on to margins approaching $100/head. That may change as numbers continue to shorten.
The current market is a reminder that you never trust the majority opinion. The crowds, expert analysts, and popular forecasters get it wrong all the time. Market prices react to a wide variety of influences and opinions. Remember, you too can express your opinion any trading day between 8:30 AM and 1 PM CST.
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.