November 2, 2024
THE MARKETS
Live sales this past week have mainly been at $190 in both the north and south plains. Packers leveraged lower futures prices Wednesday into purchases at steady to $1 lower prices in the north. Dressed sales were reported from $296-$300 — mainly $296-$298 or two dollar lower.
While futures prices for cattle have fallen, the lean hog contracts have rallied. The idea of spreading the cattle against pork is not without merit. Pork supplies are ample while beef supplies are tight and expected to remain short well into the future. High priced beef might push some consumers to switch to pork. Consumer preferences remain with beef and any movement is expected to be limited and moderate.
This past week’s slaughter was 615,000 down 8,000 from the previous week and 21,000 under last year. The choice cutout remains well above last year and the choice/select spread is over $30 as the holiday’s approach. 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 seemed to be driven by unexplained waves of buying and selling to close the week. Most contracts closed with small gains except the spot December that suffered a small loss. The losses for the week seemed unrelated to fundamentals that favored steady 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 926# up 5# from prior week and 38# 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 1.3% higher at 82.30%. This was 3% over 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.
The story of the cutout has been the strength in the grind. The 90% grind has dominated the value of the cutout, joined by good demand for the 81% and the 50%. Over half of all beef sold is from the grind. The reduction in the cow slaughter has provided a foundation for this strength.
The Cutout. The cutout softened this past week. The choice/select spread continued to widen with the latest spread over $32. Retailers are readying the meat counters for the holidays.
The end meats have fluctuated with the price of the grind. The chuck and rounds are sometimes used to shore up supplies of lean meat used for hamburger packages. Quality grade becomes unimportant because the lean meat is combined with varying percentages of fat. The recent increase in the choice/select spread will provide some margin improvement opportunities for processors.
Replacement markets
Occupancy levels are varied with some feedyards choosing to leave empty pens rather than purchase high priced feeder cattle. Kansas has several custom feeding yards that depend on customers who seem reluctant to gamble on finishing their cattle. Both Texas and Kansas are placing less cattle while Nebraska places more. Grain basis levels always favors northern locations but also the threat of severe winter weather.
Feeder futures are just guesses of price trends in the months in front of us. Many feedlots want to plan on replacement cattle by forward contracting a certain percentage of their cattle. The current futures market is forecasting a $10 drop in replacement prices by the first of the new year — only two months away. The problem is producers are unwilling to forward contract at $10 lower prices. The price point of a discount leaves most cattle owners with a loss and they prefer to wait out the market and hope the decline fails to happen.
The percentage of new crop calves that are weaned increases each year. Producers have discovered that weaning in place delivers more value to the producer than accepting the discount at the marketplace. Because a large amount of calves come from small herds, some breeders are not equiped with labor or facilities to carry on weaning support systems. Prices are sufficiently high that many just want to cash in the calves and move on. Likely to develop soon will be new vaccines making weaning easier and less stressful to the animals.
The drought monitor continues to favor herd expansion but the rains never fall evenly across all regions. This time of year it is important to receive additional rain to further progress for wheat grazing. The plains has been specially dry the past two weeks and some early planted grain fields will require more moisture. Moisture possibilities have improved for this weekend.
Compared to last week: Feeder cattle and calves steady. Demand good. The market continues to hold together as slaughter cattle prices move higher. Quality mostly average. Rain is finally in the forecast for mid-week and better chances this weekend. Supply included: 100% Feeder Cattle (54% Steers, 43% Heifers, 3% Bulls). Feeder cattle supply over 600 lbs was 56%.
Compared to lasy week: Steer and heifer calves that were weaned with at least one round of shots traded steady. Un weaned bawling calves sold with very light demand Supply included: 100% Feeder Cattle (57% Steers, 35% Heifers, 8% Bulls). Feeder cattle supply over 600 lbs was 41%.
Feeder Cattle Futures. Feeder contracts were sharply higher for no reason other than they had moved down too far too fast.
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 firmed to close the week. Forecast of rain this weekend to the central plains will be helpful to the wheat crop. Harvest is nearing completion in much of the nation. Crop yields are indicating record yields. Corn basis levels in Guymon, Oklahoma are at $.90 — basis the December contract.
EVERY VOTE COUNTS
The last-minute full press is on for the election. Both Presidential candidates and many of the politicians on the ballots are promising the world and no one in their right mind has any reason to believe they can deliver. It is beyond the nature of most politicians to come clean and acknowledge what we all know – the country cannot afford the massive giveaways and our future is at stake.
Despite the fact of two poor choices for the leadership of our country, every vote is important, and it is critically important to vote. The guidelines for your vote should honor those common values that most folks in agriculture share – individual independence and accountability, fiscal responsibility, and integrity in government. These values are best preserved by a government that does not believe they should be responsible for charting the course of our individual lives.
Limiting the role of government in our lives translates into less regulation and fewer government handouts. In many areas of agriculture, we have witnessed increased government spending under the guise of protecting our food supply and guaranteeing a safety net to all ag producers. Unfortunately, risk is a necessity for a well-functioning market. If there is no risk, then market signals in the supply chain are irrelevant.
Innovation and productivity improvements are the natural result of lost margins. Those who find themselves in red ink, must regroup and rethink their operations and strategies. The mission of government programs attempting to remedy every risk point with government support is a recipe for disaster.
A government that governs less is a government that serves the people well. Make your vote count.
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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