February 10, 2025

It is almost becoming common to check the news before setting the show lists for the week. Developing stories of administration actions quickly spill over into the markets depending on the topic. The Democrats filled slots on the weekend political programs protecting unlawful and unconstitutional acts by the President and Elon Must, but never a word about what they have already uncovered. One wonders how any audit would be possible without granting permission to view the transactions to the auditors.

Show lists reflect two different conditions. All regions posted larger show lists. This indicated an added incentive by producers to pull cattle forward to capture the unusually large positive basis. Larger show list also tip off smaller inventories held by the packers resulting from a small buy last week. The trade expects another small slaughter volume this week.

Cattle traded in both Texas and Kansas last week at $206 while northern live sales were mostly at $208. Dressed prices in the north were mainly $328. All prices were $2 lower.

Packers have always carried some inventory from forward basis contracts. This past year has failed to provide a sufficiently priced deferred futures prices to encourage producers to enter into forward contracts. This has left packers without normal quantities of forward inventories to pull from their pocket when needed for immediate slaughter needs. The result has been more pressure on the spot market cattle in an effort each week to put together a kill for the next week.

Processors slaughtered 584,000 cattle this past week down 16,000 from the previous week, and down 33,000 from last year. This is one of the smallest full week slaughter volumes in several months. Last year’s slaughter rates were impaired by winter storms. Box prices softened this past week and processing margins remained deep in the red. 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.

CATTLE FUTURES. Futures began to close the large gap between cash prices and the nearby months. Supplies of fed cattle are expected to remain tight mainly due to cow plant fillins from the fed cattle population.

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 918# up 1# from prior week and 48# 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 .2% at 82.00%. This was 2% under 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 Feature Activity Index.

The attention of the market will turn to the middle meats as the holiday season approaches. Beef features will be highlighted by the ribs that will be popular for holiday fare.

The Cutout. The cutout was weak this past week leaving processors with little choice but to trim the slaughter volumes. The difficulty has been aligning the cost from the cash market for live cattle to a new price level for the retailer. Retailers never seem sensitive to the plight of the processors losing money. Packers will be managing the slaughter volumes attempting to stem the flow of red ink and this week’s small volume will likely be followed by another small kill next week. The choice/select spread has narrowed as expected seasonally.

Replacement markets

The first weakness in cash prices for replacement cattle followed several alarming stories in the news that could threaten the stability of the beef markets. Mexican cattle import began this week and will play catch up for a few weeks. The nosebleed levels of prices this year have pulled forward new offerings of replacement cattle. The demand side has weakened as some producers choose to opt out of new purchases and leave pastures or pens empty rather than risk large losses on new inventory.

Big picture items are on the minds of many producers. Focus on tax policy, immigration deportation, trade policy, and other relevant hot spots driving the ag economy have yet to be defined or are in the process of being defined. These issues join the front and center issue of declining numbers of cattle that will not go away in the near term future. Middle of the beef chain operations will be forced to pare back while breeder expand and profit. Feed cost will face challenges as corn returns to $5. Interest rates are an unknown and many lenders are wary of squeezed margins on those along the beef chain.

The drought monitor continues to favor herd expansion but the rains never fall evenly across all regions. Broad areas of the plains have received welcomed moisture, but dry areas remain in the west. Many grazing areas will watch developing pasture opportunities as spring moves closer and winter pastures respond. The state of forage holds the answer to many questions on producers minds. Grazing opportunities have a major impact on feedlot placements but the pool of cattle available for both grazing and feeding continues to decline.

Oklahoma City. —

OKC West 

Feeder Cattle Futures. The feeder contracts pushed higher as the auction markets regain some demand for replacements.

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. Grain prices were weak to close the week. Corn basis levels in Guymon, Oklahoma are at $.90 — basis the March contract.

SLOW DOWN, YOU MOVE TOO FAST

The $200 price for fed cattle was a benchmark threshold unrealized until this year and a necessary level for some producers to return a profit. We all know in the marketplace, there is no requirement that prices reach a profitable level. The law of supply/demand is heartless. The breach of the $200 level happened quickly, and the price level blew through it and jumped to $210. This was followed by another week during which many cattle in the north were priced at $220 before someone hit the pause button.

As anyone who has played with cryptocurrencies can tell you, extreme price moves are not good for any market and can cause serious and severe financial pain if you are on the wrong side of the market and half the players are. The jump in fed prices was tracked by sharp rises in the replacement market delivering $500 calves and $300 yearlings. Each new level up promises new heights from which to fall.

The application of simple analysis points to some obvious facts that will dictate a new reality of the market. The beef market is not inelastic. There is a price level where some consumers will abandon beef for alternatives. Beef packers will not willingly continue to lose $200/head on fed cattle. There are trade policies that can damage our exports of beef that already are threatened by today’s high prices. There are animal health issues like screwworm or Bird Flu that can upend the markets. These are all red flags and the very reasons why moderation in the price for fed cattle is not a bad thing.  

The goal of moderation is price stability. The latest cattle inventory reminds us that the current level of total numbers may be at a bottom, but rebuilding will be slow and present new risks as heifers are held back and cow slaughter continues at low levels. The squeeze will remain on the middle of the beef chain operators who must live with price pressures on both ends. There is a reason why the April live cattle contract, historically the annual high, is selling $10 discount to cash.

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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