Ag Center Cattle Market Report & Analysis

Ag Center Cattle Market Report & Analysis

June 25, 2019


PLAINS MARKET TALK

Cash Cattle.



The expectation bar has been lowered for this week. Sales volumes last week were higher leaving show lists smaller for this week. Packers will be purchasing for a holiday shortened week but pent up cook out demand caused by a late summer warm up in much of the nation, will likely help beef sales.



Sellers in most regions sold cattle last week mainly at $110 live. In the north, Iowa topped prices for the nation at $113. Dressed prices were mostly at $181-182 dressed. All prices were $2-3 lower and for those looking for a market bottom, it still hasn't happened yet.



Cattle Futures. The live cattle futures were mixed with the front end spots higher and the deferred losing ground. The speculative longs have left the market.



The Comprehensive Fed Cattle Weekly Report offers the most current carcass weight information. Steers and heifers are grouped together. The latest report shows carcass weights down 1# at 824# -- 8# under last year. Discounted futures are encouraging early sales of cattle holding carcass weights near the low for the season for a prolonged bottom. Year to year weights are important for the tonnage of beef produced.



Forward Cattle Contracts: Very few sales occurred in the forward markets except a few dairy cattle. The fall in futures prices has slowed forward contracting.



Weekly graphs on the Comprehensive Weekly Fed Cattle Report break down the categories of trade for the week according to 1) formula cattle; 2) negotiated live; 3) negotiated dressed; 4) and forward contracts. Some cattle included in the formula category are week to week negotiated grids and not committed cattle to one plant. Other cattle designated as formula are "over the tops".



The Cutout. The cutout was flat to mixed. The decline in the cow mix in the slaughter has given strength to the ground beef market. The middle meats have yet to show the type strength normally expected this time of year. The choice/select spread is $19. The national grading percentage has fallen -- widening the spread.



Beef Feature Activity Index. Warm weather for grilling will be late in many areas of the country but given comparative pricing against other meats, beef should gain marketshare. Many of the current purchases will be marketed by 4th of July. The price of competing meat choices will be the driver to push retailers to sponsor special beef features. Absent those specials, the price of beef should be a calling card to the consumer based on price alone. This will especially be true if the recent decline and expected decline in cash prices for live cattle continues and translates into lower box prices.



Cutout Values as of Monday, June 24, 2019

Choice Cutout Choice Price Change
219.74 Down $0.08
Select Cutout Select Price Change
199.81 Up $0.26
Choice/Select Spread
19.93



Replacement markets



Demand is strong from all grazing areas of the country with rain contributing to abundant forage across a broad area of the plains and southwest. Cattle are mostly cleaned up from winter grain fields and marketings will slow for the summer. Grain prices will play a major role in determining stocker and feeder prices for the balance of the year.



There is little good to report to bankers when feeder cattle are sold and the profit or loss calculated. It takes little math to see when replacement cattle are sold, the result is red ink and the bottom line number is getting worse by the day. Calves were bought too high and sold too low. The next inevitable pressure point will be calf prices that will be sharply lower this coming season.



Oklahoma City. Feeder cattle were $1-4 higher ignoring the declining futures.



Feeder futures. Feeder futures were sharply lower. Volatility is back in the feeder futures with small volumes and large price moves. Prices are flatline from August through year end, but the price levels have made a substantial move downward.



Feeder Cattle Cash Index. Feeder cattle are being yanked around from the run up in grain prices and government trade policies. The futures are pulling or pushing the cash.



Forward cattle contracting. Feedlots are moving into more forward contracts on fall cattle but basis levels are widening as feedlots take protection on run away grain cost.



National Weekly Feeder Summary released on Friday of each week tracks the national prices by region for last week.



Grain Futures. Corn futures were higher early this morning Tuesday. The news was the approaching wheat harvest and the possibility many feeding operations will be switching to wheat. Most private forecasters believe the USDA estimate subtracting 3 million acres is insufficient to cover the damage from wet weather and the number is higher with some guesses of up to 7 million acres. Losses in the size of the crop will come from both lost acres and lost yield. The basis is currently at 55 over the July board in Guymon, Oklahoma. Corn is now pricing into rations at $9.10 cwt. in the Oklahoma Panhandle.



USDA CATTLE ON FEED JUNE 1, 2019


U.S. CATTLE ON FEED ESTIMATES
IN YARDS WITH MORE THAN 1,000 CAPACITY

AVERAGE RANGE
ACTUAL OF ESTIMATES OF ESTIMATES
CATTLE ON FEED June 102 101.3 101.0-101.9
PLACED DURING May 97 95.9 93.2-98.9
MARKETED DURING May 101 100.8 99.8-101.1






WINNING THE BUSINESS THE OLD FASHION WAY -- EARNING IT!



The advent of plant based proteins has arrived like a Tsunami. The press coverage has been unrelenting and favorable. The introduction onto food service menus has been rapid. Most restaurants have either posted an addition to their menus or promise to soon. The exception is Shake Shack that has refused to add a alternative meat product. The media is full of stories of problems keeping sufficient inventory on hand. Consumers are reminded of the self serving assertion that the product is helping save the planet from global warming partially caused by the livestock industry. Most supermarkets have announced plans to start selling alternative meat products.



The business side also has been a boon to investors. Beyond Meat's stock went public at $25 and is trading currently at $150 after having reached $200. The business stories are daily and also favorable suggesting a new disruptive business model. Beyond Meat and Impossible Foods are the leaders but giant Tyson has now joined the fray promising new meat alternatives in the future. Most supermarkets are adding plant based proteins to their inventories.



The beef industry has met the onslaught with complaints about "Fake Meat". The attacks have focused on labeling, hoping once people realize the new products are not real meat, they will go away. They are dead wrong. The beef industry was outraged when the burger shops introduced a chicken burger. The chicken burger remains today. The food outlets will offer whatever they can sell and bad mouthing the competition is a failed strategy.



Alternative meats, both plant based and cell based, are here to stay and the beef industry needs to compete by offering a better product at a better price. The industry also needs to educate consumers on the role of beef animals on the planet and in the diet. Every instance of someone ordering an alternative meat product is a lost sale, and unless there is a plan in place to replace that sale, beef demand will decline. Expanded markets abroad is the most logical replacement.



The nutritional value of beef is superior to those offered by alternative plant based proteins. The body doesn't store protein so it is necessary to replenish it daily through diet. When eaten proteins break down into amino acids that are used for almost every metabolic process in the body. The proteins source matters because animal proteins provide more balanced amino acids than plant based proteins that sometimes have low levels of certain amino acids and sometimes not all the nutrients provided by animal based proteins -- especially red meat. For example plant based proteins are low in methionine, tryptophan, lycine and isoleucine. Amino acids are classified as essential and non-essential. Animal proteins, because they resemble your body more closely, deliver essential amino acids. Animal proteins also tend to be high in other nutrients often not as prevalant in plant based proteins. Those include Vitamin B-12, Vitamin D, Omega 3s, Meme-Iron, and Zinc.



Price will always play an important role in consumer choices. Currently plant proteins cost more than a beef burger. That may change as competition develops in this space. Beef will always need to compete for price but it also can compete by providing the information about the product that is honest and tells the factual story of beef and how the nation's grasslands are converted by ruminants to protein. Beef is an energy dense food that is known as brain food. The supply chain data desired by consumers must be provided through animal identification.



The bottom line message to consumers is the value of a balanced diet. Veggie burgers have been around a long time. You can soak two pieces of bread in butter and put almost anything in-between and the result will deliver a satisfactory taste.



https://www.nytimes.com/roomfordebate/2012/04/17/is-veganism-good-for-everyone/meat-is-brain-food


FURTHER NOTES AND 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.





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 150 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 and fed cattle sales are par the appropriate futures contract.

INPUTS TOTAL$ $CWT
750 # Feeder Steer 988.50 131.80
Cost of Gain 600 pounds 560.23 0.93
Estimated Interest(Prime + 1%) 40.84
Current Breakeven 1,579.90 117.03
Current Futures 1,469.21 108.83
Net Profit / Loss -110.70 -8.20



CURRENT CLOSE OUT

The Cattle Report estimates current profit or loss on cattle placed on feed 150 days ago. 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.

INPUTS TOTAL$ $CWT
750 # Feeder Steer OKC 150 days ago 1,102.50 147.00
Cost of Gain 600 pounds 531.21 0.89
Estimated Interest(Prime + 1%) 36.55
Resulting Breakeven 1,670.26 123.72
Current Texas Panhandle Cash 1,480.68 109.68
Net Profit / Loss -189.58 -14.04