May 16, 2025
THE MARKETS
The battle for primacy between futures and cash prices has been ongoing all of this year. Short sellers can not justify the sustainability of high prices for beef and packer contributions to live cattle margins that must undergo an adjustment. The cash trade continues to find leverage on the sellers part and supplies of fed cattle are on track to continue to dwindle. Futures in the live cattle contracts have endured several periods this year when volatile non-fundamental factors took control and prices moved erraticly with reckless abandon.
Cash prices, just to prove they were not dictated by futures, moved $1 higher in the north and south in trading this week. Sales in the north at $229 live in the north reaching $230 were common. Dressed trades occurred at $358-$360 steady with the previous week. In the south live sales were mainly $219- $220 with over the tops several dollars higher.
Processors slaughtered 559,000 cattle this past week flat with the previous week, but down 57,000 from last year. This past week packers sold boxes with marginal gains and were forced to pay higher prices for fed cattle — leaving the margins deep in negative territory. The fed cattle portion of the weekly slaughter continues to make a larger percentage of the total slaughter than prior years. The cow slaughter remains in decline from last year and beef producers are encouraged by high calf prices to hold older cows for another calf. The shortfall of the cow slaughter has kept packers pulling from the fed cattle population to put together weekly slaughter needs.
CATTLE FUTURES. Technical trades and market stops have entered the market with many computerized order entry points. The language was all about new contract highs, gap filling, and downside reversals. We can expect more volatility as the cash competes with the futures for price guidance. As with most of these type moves the market momentum always seems to overdo.
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# down 1# from prior week and 25# heavier than last year. 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 flat with the previous week 84.80%. The current grading hovers 1% over last year after recently reaching an all time high.
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. Published reports show hamburger to be not only the most popular item on the meat counter but also the fastest growing. 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 box prices were mixed. The beef sold daily in the marketplace has reached a grading point when prime grade is equal in size to select. This historic compilation of the choice/select spread should now include the choice/prime spread. Moreover, discussions about breaking out more quality categories within the choice grade are long overdue. The ultimate objective is the create categories that appropriately fine tune and match consumer taste with the right price points.
Replacement markets
Once again the closing of the Mexican border to imported live cattle will further tighten the pool of replacement cattle — already shortened to the point some pastures will go unstocked this season. Runaway prices this year have repeatedly demonstrated their ability to top last week’s prices with still higher prices. Price expections of the futures markets have failed to achieve profitable price levels for stocker operators.
Few participants believe in the sustainability of the current price structure that forces almost every purchase of replacement cattle deep into the red ink. Adjustments will be difficult given the short supply of replacements in the pool. The industry will be forced to contract and contraction will be painful to many if not all operators in the live animal space.
The drought monitor continues to favor herd expansion. April/May rains have been generous across the plains. The recent rains have covered a broad swath of the plains. Following the cool rainy weather will be summer heat and wind.
Compared to last week: Feeder steers 4.00-6.00 higher. Feeder heifers 2.00-6.00 higher. Demand very good for feeder cattle. Few weaned steer and heifer calves sold mostly steady. Demand moderate to good for calves. Cattle futures made large gains today as the stock market rose sharply and the southern border once again closed to cattle imports. May wheat run is on, but several new crop calves were included in supply. Wheat will see some significant maturing this week as temperatures will rise well into the 90’s. Qualty ran the full gamut of plain to attractive. Supply included: 100% Feeder Cattle (57% Steers, 39% Heifers, 4% Bulls). Feeder cattle supply over 600 lbs was 79%.
Compared to last week: Steer and heifer calves over 450lbs sold 8.00 to 12.00 higher, under 450lbs sold steady to 3.00 higher. Overall calf quality was good, with best demand on heavier calves. Supply included: 100% Feeder Cattle (40% Steers, 56% Heifers, 4% Bulls). Feeder cattle supply over 600 lbs was 20%
Feeder Cattle Futures. Feeder futures followed the lead of the live cattle price action and closed sharply lower.
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. Prices are developing a new trading range. Rain and good planting conditions are completing the placement of this year’s crop. Corn basis levels in Guymon, Oklahoma are at $.90 — basis the July contract.
It is not unusual for corn futures to develop a two track pricing in the spring and summer. Old crop corn follows one track and new crop another. Rain patterns will influence the new crop prices while old crop pricing tends to follow government stock reports and farmer releases of grain from the bins. More farm storage makes it more difficult to ascertain on farm storage. Crop planting is in progress and reports of acreage and rainfall will begin to influence the prices of the new crop.
ADJUSTING AT THE RETAIL LEVEL
The retail marketing of beef is the end point of the beef chain and often the most important. It is the critical point that sets the stage for the consumer’s choice of meat. Influencing the consumer’s choices is often dictated by minor adjustments that occur on the meat counter in the grocery stores or on the menus of the nation’s restaurants. These adjustments are rarely large and conspicuous. The last thing a retailers wants is to disrupt the consumer.
Consumption of red meat is dictated by the nature of the product. It is a fresh product that could spoil so retailers mark it down to assure it all sells before spoiling. The news media often mischaracterizes beef sales saying beef consumption is down because consumer demand is waning, but the reality is beef demand may not be down – producers are simply producing less beef.
Grocery stores create pricing models to determine the margins on each of the meats. Those margins dictate the allocation of space on the meat counter. It is likely beef will find less space on the meat counter because it is in short supply and margins are thin. Moreover, the retailer will decide which cuts to feature and even how to present the cuts. Obviously, you can expect more hamburger because of price, but some retailers are now choosing to blend ground pork into beef hamburger.
Restauranteurs also face difficult decisions. First, restaurants don’t like to change pricing on the menus frequently – printing new menus and disgruntled customers noticing the change. Like grocery store managers, they also look at the margins of the offerings. Tight beef supplies and high prices translate into less beef offered on the restaurant menus. The nation’s premium steakhouses can only sell so many $100 steaks.
All these adjustments damage marketshare and pose the threat of changing the eating habits of consumers. The message to beef producers is simple – ramp up the rebuilding of the nation’s cattle herd.
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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