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October 21st: National Feeder & Stocker Cattle Summary
USDA-MO Dept of Ag Market News

RECEIPTS:    Auctions     Direct    Video/Internet     Total
This Week     274,900     49,700           600             325,200 
Last Week     236,100     62,500        18,900          317,500 
Last Year       281,200     40,100         3,100            324,400  

Compared to last week, feeder steers and heifers sold mostly 3.00 to 4.00 lower however; there were some auctions reported slightly higher this week.  Steer and heifer calves sold mostly 3.00 to 6.00 lower, with unweaned calves selling up to 10.00 lower.  It's been a month since this report has mentioned a higher trend, as the auctions that were called higher this week were sharplyl ower last week.  Many more spring born calves are making their way to the market place in mid to late October and buyers continue to be very selective in their purchases.  Preconditioning, weaning for over 30 days and two rounds of shots are paramount for producers to getting top dollar for their calves at this time of year.  Diversified operations sometimes don't have the time to get out of the combine cab and get all the work done when weather is optimum for harvesting; however that can pay off in the long run if that work had been done a while ago.  Grass has been plentiful in the Plains this summer with very few spots that didn't receive ample rainfall; leaving cows and calves in the best body condition scores for this time of year in a long time.  

Cattle futures had good gains in the market last Monday and Tuesday, only to get whiplash a little on Wednesday.  Thursday climbed rather mightily throughout the trading session and Friday has been an overall good day as feeder futures closed the week where it was on October 10 while live cattle futures closed around 2.00 higher since then.   Yearlings are still in high demand this week on Tuesday with a package of 735 lb steers in Kingsville, MO sold at $137.00 and on Wednesday a load of 793 lb steers sold in Kearney, NE at Huss-Platte Valley Livestock at 130.00.  Also on Wednesday in Bassett, NE a load of 895 lb steers found new owners when the gavel fell at 126.75 and on Thursday in Pratt, KS a load of 900 lb steers sold at 126.10.  Optimism abounds for their new owners and they begin the process of marketing them for a profit.  

Packers have made their stockholders happy with the large profits in the 3rd quarter and still have a very positive outlook as the 4th quarter starts off with a bang. Large protein slaughter continues as the cattle slaughter still hovers above 600K even with some plants doing their scheduled cleanup procedures these past few weeks.  Hog slaughter is breaking records as the largest slaughter on record was estimated this week at 2,514,000; which would be 15,000 head more than the previous record set back in December 2015.  Hurricane Matthew idled some southeastern hog plants certain days last week and those packers need to try and make headway into their unscheduled backup of around 150,000  originally scheduled for harvest last week.  Cattle on Feed Report was released Friday afternoon with October 1st reported at 100 percent; Placements at 98 percent and Marketings at 105 percent with placements being well below estimates and others coming in slightly under the industry analyst estimates.   Auction volume this week included 38 percent weighing over 600 lbs and 38 percent heifers. 


October 21st: Shootin' the Bull Weekly Analysis
In my opinion, this has been an exhaustive week.  If there were ever proof that markets can remain irrational for longer than one can remain solvent, this market has been it.  So far, the contracting wave count has held in both fats and feeders.  December fats came to within $.90 of equaling a previous high.  This is an event that has not transpired since inception for most contracts currently traded.  With that said, a trade above $103.90 December will lead me to perceive the 5th wave decline is complete.  Until that transpires though, participants remain in an exceptionally wide price range of indecision.  Technical indicators have turned up at the end of this week.  I am anticipating saving face on the previous comments of what packers may have been inclined to do.  As they have not had to go bid yet for inventory, many begin to see shrinking finished supplies through the 4th quarter.  This would make my previous comments poorly timed, but valid nonetheless.  Let's say that December fats do trade above $103.90, then what?  

First, a 5 wave up move to the August high of the respective contract month viewed will be anticipated.  If the fundamentals are changing slightly, this could move higher through the end of December.  How the anticipated rally unfolds will lead me to begin deciphering the next most probable move.   The industry needs some time to work through the current situation.  This marking of time is anticipated to produce a sideways trading range.  The parameters are yet to be determined, but the next several months are anticipated to form the basis of this sideways trade.  With this weeks supply information not showing any let up at all for beef, and all proteins production this week, neither the beef or pork industries have flinched to cut back production.  Still running at a 25% heifer kill through September, cow/calf operators are urged to rethink expansion at this rate.  I have come to the conclusion that no amount of increased consumer purchases can alone chew through the glut that is upon us and still growing.  I see restaurants full, grocers full and no change in discretionary spending.  Therefore, without a dramatic change in discretionary spending, the consumer is not anticipated to eat through the glut.  

So, I recommend starting to pull Ferdinand off the girls and begin reducing the output.  Production of beef has been significantly disrupted.  More so than at anytime in history.  That disruption has caused significant liquidation, followed by significant expansion.  Neither is anywhere near what theoretical production should be for the current palate of the consumer.  As producers grapple through the changes that takes months and years to materialize, watch for the creation of a major sideways trading range to develop.  That range is anticipated to be at or above the August high, and the contract low per respective contract month.  
Feeder cattle remain at the mercy of the pull from fat cattle.  Although some are perceiving that heavy feeders are declining in numbers, there remains plenty of calves to become feeders this spring.  With the heifer kill as is, the supply is going to continue.  To combat this, consumers will have to consume more and producers produce less. The feeders have the same contracting 5 wave pattern as do the fats.  January feeders will need to trade above $120.45 before a corner can be called turned.  Like the fats, once the change in pattern is solidified a rally back to the August high per respective contract month will be anticipated.  How this anticipated rally unfolds will help to decipher the next most probable move and parameters for a potential sideways trade.  
Dennis Gartman is an analyst I highly respect.  His comments today on corn are perceived as good as one can get at this time.  He stated that with all the corn on hand, the US farmers ability to produce, and biotech labs ever increasing yields, corn is not going down.  The world is finding more and more uses for corn. With ethanol in the US still strong, and livestock production historical world wide, this 15.1 billion bushel crop is not anticipated to be overwhelming enough to push prices below $3.00.  One of the oldest rules in the book is that a market that doesn't go down any longer on bearish news isn't going to go down anymore.  Along with beans not having made any contract lows when corn and wheat did, leads me to perceive this market is even more friendlier than corn. 

Christopher B. Swift is a commodity broker and consultant with Swift Trading Company in Nashville, TN. Mr. Swift authors the daily commentaries "mid day cattle comment" and "Shootin' the Bull" commentary found on his website @

An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.


October 21st: Cattle on Feed Report
United States Cattle on Feed Up Slightly
  • Cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.3 million head on October 1, 2016. The inventory was 0.37% above October 1, 2015. The inventory included6.83 million steers and steer calves, down 2 percent from the previous year. This group accounted for 67 percent of the total inventory. Heifers and heifer calves accounted for 3.44 million head, up 4 percent from 2015.
  • Placements in feedlots during September totaled 1.91 million head, 1.85% below 2015. Placements were the lowest for September since the series began in 1996. Net placements were 1.86 million head. During September, placements of cattle and calves weighing less than 600 pounds were 345,000 head, 600-699 pounds were 300,000 head, 700-799 pounds were 455,000 head, and 800 pounds and greater were 805,000 head.
  • Marketings of fed cattle during September totaled 1.73 million head, 5.48% above 2015.
  • Other disappearance totaled 42,000 head during September, 26.32 % below 2015.
. .

Cattle on Feed Inventory in 1,000+ Capacity Feedlots as of October 1st
Millions of Head

Number of Cattle Placed on Feed in 1,000+ Capacity Feedlots in September
Millions of Head

Number of Cattle Marketed from 1,000+ Capacity Feedlots in September
Millions of Head

Cattle on Feed by State as of October 1st

October 21st: USDA Cold Storage Report
  • Total red meat supplies in freezers were up 7 percent from the previous month and up slightly from last year. Total red meat supplies were a record high for the month of September, since the data was first recorded in 1946. 
    • Total pounds of beef in freezers were up 9 percent from the previous month and up 4 percent from last year. Total pounds of beef were a record high for the month of September, since the data was first recorded in 1932. 
    • Frozen pork supplies were up 5 percent from the previous month but down 2 percent from last year. 
    • Stocks of pork bellies were down 22 percent from last month but up 130 percent from last year
  • Total frozen poultry supplies on September 30, 2016 were down 2 percent from the previous month but up 2 percent from a year ago. 
    • Total stocks of chicken were down 1 percent from the previous month and down 4 percent from last year.
    • Total pounds of turkey in freezers were down 4 percent from last month but up 14 percent from September 30, 2015.

October 21st: Closing Futures Summary

Live cattle futures climbed to a roughly two-week high on Friday, boosted by chart-based buying ahead of a government supply report that was released after the close. Chicago Mercantile Exchange live cattle extended steep gains from the previous session, with the two-day percentage rise of 4.9 percent the largest since December. CME December live cattle finished 1.750 cents higher at 101.875 cents per lb, in a rebound from last week's six-year lows.


October 20th: Commodity Market Comments
  • “Shootin’ The Bull” -- Christopher B. Swift.
  • ..
    Live Cattle: Honestly, I spent the majority of yesterday afternoon walking around wondering how I was going to capitulate my analysis for a bottom.  Having hashed over every aspect I could, I realized that the consumer demand was not going to be enough to chew through the glut of protein currently available.  It did not appear that any price would be low enough to increase consumption to the point to offset the supply.  When attempting to decipher supply, all I could think about was the 26% slaughter rate of heifers, the last quarterly hogs and pigs report continuing with expansion, and poultry a mere 1% decline slated.  Now, I had to decipher whether the already known factors above would continue to push prices lower, or as I have commented on earlier, that the contracting wave count was a signal that improvement was being seen.  Today’s price action did little to help decipher anything.  I know the cliché of “markets can remain irrational for longer than one can remain solvent”,  This helped some, because I perceive that a great deal of the price action is irrational.  Markets tend to go further in price than most anticipate and what works one time may not work another.  So, I remain perplexed, and with all of the above stated, do not have much more of an idea than I’ve had the past several days.  Therefore, to keep from making another mistake (the mistake being I did not recommend being short for the 5th wave), I do not want to do much of anything until December fats break above $103.82 or below $93.82.  The contracting pattern remains in tact.  The supply burden is anticipated to be with us for months to come.  Finding the intrinsic value has been more than illusive.  However, a trade above $110.82 December will lead me to perceive the wave 5 is complete and the beginning of working through the glut will commence within a price range and not further price declines.  Recall that I had anticipated the past 9 months to have been a sideways trade, attempting to relegate supply to demand.  Factors appeared promising, but come to find out, the lack of unity within the industry caused some to grow cattle larger and continued to overwhelm the consumer.  Increases in restaurant advertisements and grocer features this summer fell to the wayside with the continuance of production at elevated levels. In my opinion only, if you want prices higher, one has to stop producing them in such numbers or at such weights.

    Feeder Cattle: Feeder cattle continue to follow the fats when they lead higher and out run them when pushed lower.  This is anticipated to remain, regardless of direction due to supply.  Feeders setting a new contract low Wednesday is perceived to have completed a wave sequence.  Of what magnitude is undeterminable yet.  How the rally unfolds will help to decipher this.

    Corn: Just about everything was weaker today.  I view today’s comments by Eurozone’s Draghi to have been exceptionally negative towards the Eurocurrency and commodities in general.  He had little hope for a recovering Eurozone and that is the last thing markets wanted to hear after all the stimulus packages presented.  Most all of the commodity markets were unchanged or firmer this morning prior to him speaking.  Before he finished, all were down on the day with many continuing lower through the day.

    Corn sold off sharply, but did not do any damage to the chart.  There is little reason for a bull market at this time, so I don’t anticipate a trend of significance to have been established to be considered broken.

    Crude: Energies were lower with all the other commodities.

    Gold: Gold was lower with all the other commodities.

    Bonds: Bonds ended the day slightly higher as weakness in everything isn’t very inflationary.

    Christopher B. Swift is a commodity broker and consultant with Swift Trading Company in Nashville, TN. Mr. Swift authors the daily commentaries "mid day cattle comment" and "Shootin' the Bull" commentary found on his website @

    An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.


    October 20th: USDA Livestock Slaughter Report

    Record Beef and Pork Production for September

    Commercial red meat production for the United States totaled 4.32 billion pounds in September, up 4 percent from the
    4.14 billion pounds produced in September 2015.

    • Beef production, at 2.18 billion pounds, was 4 percent above the previous year. Cattle slaughter totaled 2.62 million head, up 6 percent from September 2015. The average live weight was down 12 pounds from the previous year, at 1,370 pounds.
    • Veal production totaled 6.2 million pounds, 10 percent below September a year ago. Calf slaughter totaled 42,500 head,up 14 percent from September 2015. The average live weight was down 61 pounds from last year, at 251 pounds.
    • Pork production totaled 2.13 billion pounds, up 4 percent from the previous year. Hog slaughter totaled 10.2 million head, up 5 percent from September 2015. The average live weight was unchanged from the previous year, at 280 pounds.
    • Lamb and mutton production, at 12.0 million pounds, was down 2 percent from September 2015. Sheep slaughter totaled 193,300 head, slightly above last year. The average live weight was 125 pounds, down 3 pounds from September a year ago.
    January to September 2016 commercial red meat production was 37.0 billion pounds, up 3 percent from 2015.

    Accumulated beef production was up 6 percent from last year, veal was down 8 percent, pork was up 1 percent from last year, and lamb and mutton production was down 1 percent. 


    October 20th: Beef Byproduct Value Lower Than 5 Year Average

    The byproduct value is the total value of all non-meat items produced from an animal such as cheek meat, hearts, livers, tripe, tongue, meat and bone meal, edible and inedible tallow, and hides. Exports are a driver of most byproduct values. Variety meats have a much higher consumer preference in overseas markets including Asian countries and Mexico, and most U.S. hides are processed overseas. These byproduct values are also a factor for packer margins. Both steer and hog byproduct values have seen slow but steady price support so far this year.

    The values of each byproduct are calculated based on a 1400 pound slaughter steer, on a 63% dressed equivalent basis, and set table of pounds of byproduct per 100 pounds of steer. 

    Steer byproduct values bottomed around $10.50 per cwt. the end of 2015, and have rebounded since then, according to the USDA report. As of mid-October, the steer byproduct value was $11.46 per cwt., compared to $11.23 a year ago and $13.54 for the past five year average (2010 to 2014). 

    Within the steer byproduct categories, the hide is largest contributor to the overall value. Most of hides in the U.S. get shipped to China for processing then shipped back or to other countries for further use in leather products. As of mid October the Heavy Native steer hide was priced at $75 per piece, this is up $7 from a year ago. Other beef variety meats that have experienced higher prices compared to a year ago include: head meat, oxtails, and the semi-annually contracted pet food items. Livers, lips, heart, and cheek meat prices are all tracking below their year ago levels. 


    September Seasonal Drought Outlook

    "Click Here to view a Slide Show of Drought Monitor maps for the last 12 weeks


    October 19th: Change in Feeder Cattle Futures Will Affect the Basis

    Notice from the CME Group:  "Commencing with the November 2016 contract month and beyond, the weight range for cattle included in the Feeder Cattle Index will be changed from 650-849 pounds to 700-899 pounds. In order to implement this change, the Index price reported for Tuesday, November 1, 2016 will begin to reflect the new weight range. Beginning on Tuesday, November 1, 2016 and the next consecutive four (4) Business Days, a new day’s data using the new weight range will be incorporated into the Index calculation and the prior corresponding day’s data using the old weight range will be dropped. This phase-in process will be implemented for market continuity and the Index price commencing on Monday, November 7, 2016 and subsequent days will only contain data using the new weight range."

    Because prices for heavier feeder cattle are lower than for lighter cattle, Feeder Cattle futures will likely decline, reflecting the heavier cattle.  By itself, this will not be an indication of a weaker market but an adjustment for the weight change and the resulting change in the basis.


    October 19th: Corn Crop Harvested


    October 18th: Does Algorithmic Trading Help or Hinder Price Discovery?
    Does the liquidity that algorithmic trading provides help or hinder price discovery?

    In my opinion, the allowance of algorithmic trading is impacting more than just markets.  Speaking specifically of commodities, speculation and hedging have forever shared an integral part.  Speculation provided liquidity in which the producer or purveyor of a commodity could offset price risk in the future.  The hedger may wish to mitigate risk while the speculator is willing to assume the risk.  From inception of trade to this day, the price for a specific commodity is founded upon the demand from consumers and the availability of the product in need.  The number of factors devised by participants of the market to anticipate price direction are countless; however, they all have one commonality.  This is, they are all based upon the interpretation of data by humans.   Regardless of whether you think beans are going up or down due to weather, a change in technical indicator, or a development in the currency exchange rate, you derived that information from data available. If a decision to participate was made, you assumed the risk of loss, or benefited from your analysis. Your decision to trade increases the volume of contracts, helping to disseminate the risk, which in theory reduced the amount of potential price fluctuation.  Hence, the public potentially benefited from the reduction in price fluctuation.  The “you” in any of these instances can be an individual, commercial, fund, or lending institution.  All provided liquidity to the markets.  While the speculation is rank, the majority of participants have a commercial or personal interest in the commodity traded.

    The rise of electronically matched orders swept the old trading floors clean of individuals that made their livelihood off analyzing markets and order flow.  Many floor brokers have described the noise factor as much of a tell-tale market signal as anything.  This noise was an increase in order flow that was disseminated from client to broker to clerk, to floor broker and back again.  Today that noise is no longer being heard, but seen.  The electronic platforms we trade on make visible our intentions to buy or sell, and how many, to all.  Technology has allowed some to create computer programs that recognize the order flow and categorize its magnitude through the day. This categorization of volume at any given time produces signals to the programs to buy or sell in large quantities, with execution of orders in the thousands within seconds. No human thought was given to the commodity or the impact of supply and demand.  The decision in the case of the algorithmic trader is the following: when does volume of trading exceed the magnitude needed to elect the order entry systems to buy or sell depending strictly upon the flow of, or anticipated, incoming orders.

    As I perceive it, the issue is this: does the volume of trades produced by algorithmic traders help or hinder in the discovery of price?  Algorithmic traders suggest they provide necessary liquidity that is no longer provided by individuals, commercial, and bank proprietary trading.  No doubt, the volume of trades algorithmic traders produce is phenomenal.  The exchanges boast monthly of their increases in volume; however, this increase in volume is not based upon the manufacturing, production, or procurement of commodity goods.  There is no increase in commercial interest of the commodity or the production/consumption of this commodity.  The function they provide is financially motivated only.  A problem with this is that they provide said function at a cost that cannot be quantified.  Due to the speed in which orders can be executed, their volume can overtake the opposing side of orders to cause significant price gyration in seconds.  Participants outside of the algorithmic trading environment placing orders may have fills sharply lower or higher than anticipated.  This higher or lower price is difficult to translate into the cost of the finished consumer goods. My personal view of their presence in the market is that the algorithmic traders are intimidating.  This is not necessarily a malice form of intimidation, but more intimidation from myself and others being ill-equipped to trade in this new-found environment. Witnessing nearly daily the severity of price width and speed in which it unfolds, I conclude that most seasoned traders view their execution ability with awe.  Participation of trading in this environment has been likened to walking in off the street and jumping head long into a bar room brawl with guns, knives, and broken bottles and you are naked.

    While algorithmic traders may influence greatly the daily fluctuation of price, I would be very surprised that they actually influence a fundamental price direction.  For example, the size of the corn harvest and perceived demand for corn in the next 12 months, suggests the price of corn would move higher or lower.  A fundamental justification of price movement is as natural as the demand that drives the need for, and supply that fulfills the need. I perceive this is where we as individuals and market participants decide how much the liquidity provided from algorithmic traders helps or hinders price discovery. Volume is a necessity.  Without said volume, price fluctuation would be greater regardless of the participant. The price disruption caused by the increased volume of algorithmic traders is excessive.  Is there a trade off?  To wrap this up, in my opinion only, I do not anticipate the exchanges to limit this trading as the volume it creates directly benefits the exchange.  Therefore, algorithmic traders are anticipated to be here for a while. How market participants outside of this form of trading will adapt is unknown.  The frustration of some participants will cause further decreases in liquidity provided by human beings.  If the volatility continues, it is possible that more human participants will become dissatisfied with the futures markets.  When this occurs, the price of bread, meat, gasoline, and other commodities will be determined by the flip of a switch and not a human depiction of supply and demand factors.

    Christopher B. Swift is a commodity broker and consultant with Swift Trading Company in Nashville, TN. Mr. Swift authors the daily commentaries "mid day cattle comment" and "Shootin' the Bull" commentary found on his website @

    An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.


    October 18th: USDA To Implement "Flawed" GIPSA Rules Proposed in 2010

    In a letter to the National Cattlemen's Beef Association, USDA acknowledged that the agency would continue the rulemaking process on the 2010 Grain Inspection, Packers and Stockyards Act proposed rules. The proposed rulemaking was initially undertaken in 2010 and quickly defunded by Congress which recognized them as a flawed concept that limits producers’ marketing options while adding layers of bureaucracy and opening the door to litigation. NCBA President Tracy Brunner said these provisions were troubling in 2010 and remain a major concern six years later.

    “The GIPSA rules, as they pertain to cattle producers, are extremely troubling to our industry at a time when we are already grappling with volatile futures markets and a fragile cash market,” said Brunner. “Rather than working to help ensure producers have accurate price information in a productive way, like ensuring Mandatory Price Reporting is a critical government function, unaffected by future government shutdowns; USDA is expending time and resources to push forward outdated rules to regulate an industry that never requested their assistance. These rules were flatly rejected by cattle producers six years ago and a strong bi-partisan majority in Congress expressed their continual disapproval through a half-decade of defunding.”

    USDA has announced the GIPSA rules include an interim final rule on competitive injury and two proposed rules to address undue preference and the poultry grower ranking system. The agency has said they will provide additional opportunity for public comment on all the rules and will announce if any amendments will be made.

    Below is the conclusion contained within the NCBA's letter to the USDA dated November 10, 2010

    "NCBA respectfully requests that GIPSA withdraw the portions of the Proposed Rules which will have an immediate and detrimental impact upon the beef industry, those which: (1) eliminate the requirement a plaintiff establish injury to competition in order to prove a claim under Section 202 of the PSA, purport to define “competitive injury” and the likelihood thereof, and declare that specific acts or practices are “unfair, unjustly discriminatory or deceptive: under Section 202; (2) suggest the factors which may establish an undue or unreasonable preference under Section 202(b) of the PSA; (3) prohibit sales of livestock by a packer to another packer or its affiliates; and (4) require the production and publication of all cattle marketing and production contracts.

    Before GIPSA issues any rules pursuant to the provisions of the Farm Bill, the NCBA requests GIPSA engage in substantive and meaningful discussions with producers, packers, retailers and consumers so as to ensure any such future rules are workable in the beef industry, recognize legitimate business reasons for marketing agreements and production contracts, do not stifle innovation in the industry, and are consistent with existing statutory authority. In addition, the NCBA requests GIPSA provide all participants in the beef industry a thorough and comprehensive practical, legal and economic analysis of the costs and benefits of such Proposed Rules. Following such discussions and analysis, the NCBA requests that GIPSA issue separate, appropriate, clear and legally supportable rules, consistent with Congressional grants of authority, for each of the poultry, swine and cattle industries, recognizing that each segment of the meat industry is unique."


    October 17th: Losing Leverage
    Ag Center Cattle Report

    There was plenty of blame to go around as cattle owners assess their positions in a market that can't find a bottom. Some advanced the notion that computerized trading in the futures was responsible for the large drop in prices. Others faulted formula selling. Some reasoned that the USDA mandatory price reporting was at fault. Everyone acknowledges the plethora of meat on the market from pork to chicken to an upcoming Thanksgiving featuring turkey.

    These notions ignore the most obvious and likely culprit -- the loss of leverage for sellers in the marketplace. In every transaction to buy or sell, there must be a point when the price option is worse than an alternative action. Passing a bid of $98 is easy if you have another packer calling and you suspect they need cattle and might offer $99. Alternatively, a packer may withdraw a $98 bid if they believe they can turn to another feedyard and make a purchase at $97.

    Missing from the daily trading in fed cattle are viable alternative actions that provide the leverage to either push the market higher or stop the market decline. The reason no alternatives are available is the kill slots for the available pool of finished cattle is smaller than the pool of cattle. This leaves the sellers bidding against each other, with lower prices, for the dwindling supply of slaughter slots. Never has buying cattle been this easy.

    Managing the weekly slaughter of fed cattle by the beef companies is just good business. The object is to always leave the finished supplies in feedlots a little larger than the targeted slaughter number. Maintaining this market leverage is not illegal unless they are colluding to manage the numbers or set the prices offered and there is no evidence of improper actions on their part. The pared down slaughter capacities of the past few years through closed plants has taken its toll on the expanding number of cattle in the nation's feedyards. The result is a loss of leverage in the feedlots.

    Processing margins vary from plant to plant but most everyone agrees those margins are record high. Prices paid to cattle owners are low when compared to historic shares of the retail beef dollar. The only pathway to bringing those percentages back to more normalized levels is additional competition at the processing level. Reopening closed facilities would benefit cattle feeders but reopening a closed plant is a slow process. Building a new plant is even slower.

    Meanwhile feedlots will need to slow down placements of cattle on feed in order to regain bargaining power. This will occur through some natural processes as some feeding operations decide they have had all the fun they want in the business. Also some stocker operators may not be willing to sell cattle in the current price environment. Feeder cattle like feedlot cattle keep gaining the longer you own them. Eventually they must move to market and heavier offerings are frequently subject to large discounts. The current price level for cattle may of its own accord make this the shortest expansion cycle in recent history.


    October 13th: Another Big Difference - Bigger Cattle
    Cassie Fish --

    It’s hard to believe that as 2016 has rolled on, beef production has pushed to levels not seen since 2013. In 2013, the fed kill averaged 481k head per week. In 2016 the fed kill has averaged 460k. The 2013 kill equaled or exceeded 500k 15 times and in 2014 there has been one 500k slaughter week. The difference? The, well-known, bigger carcass weights of today, pushing a lot more pounds through the system.

    Bigger cattle give packers more pounds to sell and end users more beef to buy without bigger kills. This is stating the obvious but it is one more factor limiting the incentive to up fed kills further.

    In 2013, the average fed carcass weight was 829 pounds. YTD 2016 average fed carcass weight is 858 pounds. Simple math tells us that the bigger carcass is worth an extra 16,000 head per week. In essence that means the 2016 kill, from a 2013 tonnage perspective, is equal to 476k per week, just 3 pounds under 2013’s average.

    The two charts below show the fed kill going back to 2011 and beef production going back to 2011. The difference speaks for itself.

    There are a lot of incentives for cattle feeders to make cattle bigger. More days on feed means more yardage and usually a better yield for cattle that are gridded. Some say better genetics and feedyard performance are naturally expressing themselves. It’s likely all of the above and it all means more money at the feedyard level. Making cattle bigger was a necessity in 2014 and 2015 when feeder cattle were extremely tight. That is no longer the case but the business practice seems to be staying in place.

    It’s obvious looking at the charts above that with the expansion in the beef herd underway, these extra pounds compared to history are and will continue to have an impact throughout the supply chain.

    Today’s futures market action is much the same as it’s been- erosion. Cash bids are still around, mostly steady with yesterday’s low prices and some with time. Feeders are giving ground to fats this week as it become more and more evident that a bottom is not imminent.


    October 13: Congress Passes Packers & Stockyards Modernization Act
    Tri-State Livestock News

    The bill passed the U.S. House of Representatives on Sept. 26, the U.S. Senate on Sept. 29, and it was signed into law by U.S. President Barack Obama on Oct. 7. The law updates the existing P&S Act, which was originally enacted in 1921.

    The bill was supported by several agricultural commodity groups including the American Farm Bureau Federation, American Sheep Industry Association, Livestock Marketing Association, National Cattlemen’s Beef Association, National Farmers Union, National Livestock Producers Association, and United States Cattlemen’s Association.

    “The law updates two aspects of the existing P&S Act,” said Chelsea Good, Livestock Marketing Association (LMA) vice president of government and industry affairs. “The first change applies to online and video auctions and provides similar protections to producers who sell cattle at a fixed-facility livestock market.”

    In a nutshell, with more livestock moving through online sales, the law needed to be updated to ensure prompt payment, custodial account and bonding requirements. With many interpretations of the law, there was no clear USDA authority to ensure these protections through online sales.

    “The second change to the law is acceptable payment methods,” explained Good. “Currently, packers, market agencies, sale barns, professional order buyers and dealers are all required to pay by the close of the next business day. The existing law as it was written only included two methods of payment -- putting a check in the mail and wire transferring funds. Updates to the law allow for modern banking tools such as Automated Clearing House (ACH) payments, debit cards and credit cards to be included as acceptable options for prompt payments.”

    Good says it’s unlikely producers will turn to credit or debit cards as there is typically a fee involved in making transactions

    “Many buyers are already using ACH payments, so this updates the law to clarify that this practice is an acceptable form of payment,” said Good. “I could see online payment methods like PayPal, a type of ACH, being used for smaller transactions. Our postal service has gotten much slower, so the option of ACH funds coming from professional buyers will help immensely in auction barns that provide funds to their customers promptly, whether or not they have actually re-ceived the money. Quicker money movement reduces risk for everyone involved.”

    St. Onge Livestock in St. Onge, S.D. sells cattle every Friday with nearly 8,000 calves moving through the auction market each week during the fall calf run. General Manager Justin Tupper says the updates to the P&S Act will help the auction market to continue to provide timely payment to their customers.

    “When you are selling that many calves in a week, prompt payment is a pretty big deal,” said Tupper. “We guarantee money to our sellers, and the cattle business is still one of the few businesses where calves are on a trailer headed down the road after a simple handshake. This will streamline the process and allow for modern payment through available online technologies.”

    Tupper worries that the use of credit cards could get producers into trouble, especially when money is tight in a down market. However, Good says with the tight margins producers are facing, there won’t be too many who want to use a credit card and have to pay a 1 percent transaction fee on a load of calves they purchase.

    “Basically, the updates bring the law to fit modern times, and I definitely think it will help livestock auction barns better serve their customers,” said Tupper.

    “It’s important to recognize that the industry is changing and modernizing, and the regulatory environment is keeping up with the times,” said Good. “These updates are a good step in the right direction and made with a lot of consensus from many industry groups. It’s just evidence that when we work together, there is that ability to make things better for our industry.”


    October 12th: USDA October World Agricultural Supply & Demand Estimates

    The forecast for total red meat and poultry production for 2016 is reduced from last month as slightly higher beef and pork production is more than offset by lower broiler production.

    No change is made to turkey production. Beef production is raised on higher expected slaughter although carcass weights are reduced slightly. Pork production for 2016 is raised on the pace of third quarter slaughter. Broiler production is lowered as recent production data points towards continued slow growth in bird weights.

    For 2017, the total red meat and poultry product forecast was raised, primarily due to higher pork production. Beef production is raised based on expectations of higher firstquarter slaughter, but the broiler production forecast was lowered on more moderate growth in production continuing from 2016. The turkey production forecast was unchanged. Egg production forecasts for 2016 or 2017 were raised on continued growth in table-egg laying flocks.

    Beef import and export forecasts for 2016 and 2017 were raised as slightly larger supplies of beef in a number of exporting countries support higher imports and lower U.S. beef prices make the United States more competitive in world markets. The pork export forecast for 2017 is raised on expectations of higher sales to Asia. Broiler and turkey export forecasts are unchanged for 2016 and 2017.

    Cattle, hog, broiler, and turkey prices for the last quarter of 2016 are reduced from last month as supplies of product are large. For 2017, the continued large supplies of beef, pork, and broiler meat are expected to pressure prices through the year. Egg prices are also reduced for both 2016 and 2017. 


    October 10th: USDA August Meat Export Data
    CME Group

    The USDA-ERS released August monthly trade numbers recently. These meat trade numbers are on a carcass weight basis and are calculated from product weight numbers reported by the U.S. Department of Commerce. Generally, in the protein complex, August was a good month for exports and largely reflected lower prices across key protein categories (beef and pork) and reopened markets for the poultry industry.

    Starting with beef, there was impressive movement in August with regards to exports. Beef export tonnage in August was up 30% compared to 2015, granted this is also comparing to extremely low levels of exports in August of 2015. Year-over-year, increases in beef export tonnage was registered for all of our major trading partners except Canada, who imported 15% less product than a year ago . Year-to-date, this put beef exports up an impressive 6%. The LMIC forecasts beef exports to be up 8% and the August volume of exports did a lot of leg work to set the stage for meeting that forecast.

    Interestingly, at the same time Canada’s imports of U.S. beef were noticeably lower year-over-year, our August purchases of Canadian beef registered as the highest single month since August of 2008, on a volume basis. For perspective, the amount of beef we imported from Canada in August made up 28% of our total monthly beef imports. Total beef imports continued to track below year ago levels as expected, with about a 50% decrease in volume from Australia compared to year ago levels. 

    Moving on to pork, August exports on a volume basis were 11% above a year ago. Increases were seen to all major international purchasers, however we do continue to see tonnage shifts to Mainland China and away from Taiwan. Seasonally, August volume showed a noticeable and somewhat abnormal increase, when compared to the past five year average which shows stable/flat volume movement from July to September. Year-to-date (through August) pork export tonnage was 1% above 2015’s. The Livestock Marketing Information Center (LMIC) currently forecasts total export volume of pork in 2016 will post about a 1% increase compared to 2015.

    Broiler exports experienced another very good month in August, volume increased from their year ago depressed levels. Year-over-year, broiler export tonnage increased 16% in August. The destination of these exports is somewhat interesting, huge year-over-year percentage increases took place with broiler meat shipped to Hong Kong, South Korea, and the Caribbean but year-over-year volume decreases were registered to Angola, Canada, Iraq, and Mexico. Year-to-date broiler exports were about even with year ago levels but LMIC forecasts total exports in 2016 will be 3% above 2015.

    Turkey exports experienced their largest volume month since December of 2014 (turkey exports normally post their largest volumes in the fourth quarter). Mexico, our main international turkey customer, imported 14% more tonnage from the U.S. compared to August of 2015. Hong Kong and Taiwan also imported noticeably more turkey than their respective year ago levels.


    October 3rd: Animal Protein - 3rd-Quarter Review & 4th Quarter Outlook

    Animal protein or meat markets were 23.25% lower in Q3 and are down 24.01% over the first nine months of 2016. Lean hog prices led the sector lower while cattle moved to the lowest level since 2010 after making new all-time highs in October 2014.

    Meats were one of the best performing commodity sectors for 2014 rallying by 14.44%, but they moved lower in 2015 by 21.97%. We now move into the fourth quarter, a season of weak demand and meats are trading at multiyear lows.


    Estimated Cow-Calf Returns Lowest Since 2009

    The LMIC has consistently ratcheted-down estimated cow-calf returns this year as forecast calf prices for the fourth quarter were lowered.  As of early in the third quarter, fourth calf prices were estimated to be 15% below a year ago.  That fourth quarter forecast has been lowered to 25% below year ago prices.  Most U.S. operations sell their calves in the fall and prices at that time of the year heavily influence profitability.  Note that these calculated returns do not include all economic costs of production; they are used in market analysis and estimated cash costs plus pasture rent.  Of course, every operation has different resources and costs.  Year-over-year changes in calculated returns are more insightful than the specific numeric levels.

    As of late September’s revisions, the LMIC’s 2016 estimate was a return over cash costs plus pasture rent of about $15.00 per cow, which is the lowest since 2009. That is a huge one-year decline of about $285.00 per cow (2015 was about $300.00 per cow) and was even more disappointing when compared to 2014’s record high level (about $550.00 per cow).  Returns this year will not cover the total economic costs for most cow-calf operations.  While estimated costs of production have decreased slightly in 2016, based on cheaper fuel, feed, and slight drops in pasture cost, it has not been enough to offset declining calf prices. 

    Huge returns in recent years provided the economic foundation to aggressively grow the U.S. beef cowherd.  The economic stage has quickly changed, but the adjustment in cattle numbers is just starting.

    Chart does not reflect the September downward revision to $15 per cow


    All Cattle & Calves Inventory: January 1, 2016 vs. 2015
    Compiled from USDA National Agricultural Statistical Service Data

    Beef Cows Inventory: January 1, 2016 vs. 2015
    Compiled from USDA National Agricultural Statistical Service Data

    Replacement Heifers Inventory: January 1, 2016 vs. 2015
    Compiled from USDA National Agricultural Statistical Service Data

    January 29th: January 1 Cattle Inventory Up 3 Percent
    USDA - National Agricultural Statistics Service (NASS)

    All cattle and calves in the United States as of January 1, 2016 totaled 92.0 million head. This is 3 percent above the 89.1 million head on January 1, 2015.

    • All cows and heifers that have calved, at 39.6 million head, are 3 percent above the 38.6 million head on January 1, 2015.
    • Beef cows, at 30.3 million head, are up 4 percent from a year ago. Milk cows, at 9.32 million head, are up slightly from the previous year.
    • All heifers 500 pounds and over as of January 1, 2016 totaled 19.8 million head. This is 3 percent above the 19.3 million head on January 1, 2015. 
    • Beef replacement heifers, at 6.29 million head, are up 3 percent from a year ago. 
    • Milk replacement heifers, at 4.82 million head, are up 2 percent from the previous year. 
    • Other heifers, at 8.71 million head, are 3 percent above a year earlier.
    • All Calves under 500 pounds in the United States as of January 1, 2016 totaled 14.1 million head. This is 4 percent above the 13.5 million head on January 1, 2015. 
    • Steers weighing 500 pounds and over totaled 16.3 million head, up 4 percent from one year ago. 
    • Bulls weighing 500 pounds and over totaled 2.14 million head, up 2 percent from the previous year.
    Calf Crop Up 2 Percent
    • The 2015 calf crop in the United States was estimated at 34.3 million head, up 2 percent from last year's calf crop. 
      • Calves born during the first half of 2015 were estimated at 24.8 million head. This is up 2% from the first half of 2014. 
      • The calves born during the second half of 2015 were estimated at 9.50 million head, 28% of the total 2015 calf crop.

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