July 26, 2010
There were few surprises and little evidence of herd
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
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
Corn prices have weakened to a three week low.
have now retraced half of recent gains. Pollination is completing on
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
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.
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.
|750 # Feeder Steer||863.48||115.13
|Cost of Gain 500 pounds||353.32||0.71
|Estimated Interest(Prime + 1%)||21.29||
|Net Profit / Loss||-16.10||-1.29
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.
|750 # Feeder Steer OKC 150 days ago||708.15||94.42
|Cost of Gain 500 pounds||354.48||0.71
|Estimated Interest(Prime + 1%)||15.46||
|Current Texas Panhandle Cash||1,187.50||95.00
|Net Profit / Loss||109.41||8.75|