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Msg  301030 of 530953  at  7/26/2010 9:59:02 AM  by

Alvin_Tostig


The Cattle Report

 

July 26, 2010

  

There were few surprises and little evidence of herd rebuilding in the USDA Cattle On Feed report and July cattle inventory. Placements were lighter than expected and marketings also under most estimates. The result was 4% more cattle on feed when compared to prior year. The cattle inventory was 99% as expected. No signs of rebuilding the national herd were in the report.

 

The trend will be to larger supplies of fed cattle and cattle owners will be encouraged by the positive basis to move cattle quickly. Live weights have moved higher recently and now are only 5# under last year after holding at 15# for many weeks. Beginning asking prices will be at $96-97.

 

Box prices flattened out at week's end. The Japanese yen has strengthened to a 14 year high making U.S. beef more attractive in price. Prices were $1 higher for last week. The benchmark choice box was quoted at $154, while select was reported at $146 -- for a $9 spread. 

Nationwide grazing conditions were good to excellent. Hot weather, combined with increased humidity has stressed some cattle and resulted in some extraordinary death loss from heat stress. Water systems on pasture are frequently challenged during hot periods. Feedlots are cautious in new purchases as corn prices resume an upward price move. A 750# steer was quoted at $114 in the southern plains.  

Corn prices have weakened to a three week low. Prices have now retraced half of recent gains. Pollination is completing on time and under good conditions as an early crop is moving into the final stages. Grain companies are offering corn at 45 over the September contract, a much higher basis, in the Oklahoma Panhandle. Southern plains elevator supplies of corn are exhausted. Corn is now pricing into most rations at $7.50 cwt..

PROTECTING MARGINS -- THE BIG SQUEEZE

The beef industry has never been integrated like much of the pork production or all of the chicken raisers. The various sectors compete horizontally with each other and vertically with other segments of the supply chain. The USDA July inventory was a reminder of the decline in the number of cattle in the country and a preview of the struggles to come.

Industry growth happens for a reason. Profit margins are plentiful and rising prices are signaling the need for more product. The industry responds by producing more product. Nothing is more exciting than the hustle and bustle caused by growth.

The beef industry is in decline. Some feeding operations have closed and some beef plants are dark. Both cattle feeding and beef processing are plagued with over capacity. The nation's cattle herd is shrinking and with it will be tough times for all but the breeders. Oversized facilities will be competing with each other to fill their needs. In the process some more closures may be necessary.

The breeder has not been squeezed by over capacity. Breeders have survived the past few years in good shape and will be benefited by the upcoming shortage of cattle. However, expanding the breeding herd is not as easy as adding a few more pens to a feedyard or killing a few more hours in the beef plant. Urban sprawl and alternative cropping options are taking land away from the breeder and reviving the breeding herd is not an easy task. Expansion requires more subtle changes like fertilizer to increase carrying capacities on grassland.

In the meantime, stocker operators, feeders, and processors will be left to scramble and compete for the dwindling supply of cattle. Competing for a fixed supply that is inadequate forces parties to outbid the other in order to fuel the needs of the physical facilities. The net result is smaller to non existent margins for most.

  FEEDER MATRIX

The Cattle Report introduces the FEEDER METER. 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.

INPUTSTOTAL$$CWT
750 # Feeder Steer863.48115.13
Cost of Gain 500 pounds353.320.71
Estimated Interest(Prime + 1%)21.29 
Current Breakeven1,234.6098.77
Current Futures1,218.5097.48
Net Profit / Loss-16.10-1.29

TEETER METER

The Cattle Report introduces the TEETER METER. TEETER means to waiver unsteadily as markets will do. 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.

INPUTSTOTAL$$CWT
750 # Feeder Steer OKC 150 days ago708.1594.42
Cost of Gain 500 pounds354.480.71
Estimated Interest(Prime + 1%)15.46 
Resulting Breakeven1,078.0986.25
Current Texas Panhandle Cash1,187.5095.00
Net Profit / Loss109.418.75


 
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Msg # Subject Author Recs Date Posted
301344 Re: The Cattle Report Alvin_Tostig 2 7/27/2010 11:49:28 AM


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