Excerpts From VPI Market Newletter 16 Feb 06
LIVE CATTLE futures in both the FEB’06LC and the APR’06LC CME contracts closed unchanged at $91.475/cwt and $89.10/cwt respectively. Both volume and open interest retreated as the month wears down. The RSI closed at 33.49 nearing mostly oversold status. Funds are expected to start rolling positions into later months. Cash cattle were trading mostly flat amid expectations of more cattle coming into lots from drier areas. The cash market seems to be waiting on the next weather event to see if some moisture can return a little grazing fodder with it. Also, this market has been urging more cattle onto feed and through the system as fast as it can. There just may not be a whole lot of cattle that are at ready weights yet. However, another dry outlook may push those held back up in the system. The weather will have a lot to do with what comes to the feed lot over the next few weeks as the market seems to be herd-building holding heifers. This market still appears as though both live cattle and feeders have reached important tops. If live cattle feeders didn’t take profits on hedges in the FEB’06LC on 1st quarter marketings and the APR’06LC for 2nd quarter marketings last week they should be maintained at this time.
FEEDER CATTLE on the CME MAR’06FC closed up $0.65/cwt at $108.70/cwt. This was off $1.05/cwt from last Monday. The APR’06 and MAY’06 both closed up $0.35/cwt at $110.05/cwt, regaining all but $0.40/cwt from last week. Futures traded sideways in choppy trading as the market took a wait-and-see attitude regarding how many numbers will be encouraged into the system by the weather. As with grain, weather markets are always risky trying to forecast direction. This report still recommends short positions in the MAR’06FC on portions of 1st quarter sales while looking for short opportunities in the APR’06 and MAY’06 protecting 2nd quarter marketings. Despite this choppy trading, this market is still signaling a major top has been reached.
posted by Dr. Harlan Hughes 2:45 PM
2005 BROUGHT MOSTLY RED INK FOR CATTLE FEEDERSSource: Livestock Market Information Center (LMIC), Denver 13Feb06
Last year (2005) was difficult for cattle feeders. High feeder cattle prices were difficult to overcome even with low feed grain prices. What were the estimated annual returns based on feeding-out a 750-pound steer in a Southern Plains commercial feedlot, incorporating normal animal performance, and selling steers each month at the monthly average Choice steer price? In 2005, the answer would be a loss of between $25 and $30 per head.
Annual estimated cattle feeding returns are quite volatile. The LMIC began making monthly cattle feeding returns estimates in the early 1970's for feeding a 750-pound steer in a Southern Plains commercial feedlot. The best year was 2003 with annual per steer returns over $100.00. In 2003, estimated returns were positive for every month of the year. But the next year, 2004, was disappointing for cattle feeders with average returns in the red (-$45.00 per steer) and with only three sale months (May, June and July) when the closeouts were in the black. In 2005, five sale months had positive estimated returns (March, April, May, November and December).
For January of this year, strong slaughter steer prices kept average feedlot closeouts in the black. Actual feedlot closeouts were likely better than LMIC estimates as very mild January weather occurred. But returns in January were smaller than a month earlier. For February breakeven sale prices are $96 to $97 per cwt. So, with slaughter steer prices averaging in the low $90's per cwt. for February, losses of over $50.00 per head are
projected for the month. Feeder cattle (700-to average, 2005's cost of gain for both steers and 800-pound steer) prices have declined some heifers increased about $5 per cwt. in recent months and breakeven sale prices will decline throughout May. By May, breakeven sale prices will be $92 to $93 per cwt.
FEEDLOT UPDATE '05 VS `04 According to Kansas State's Focus on Feedlots report, steer and heifer closeout weights were heavier in calendar year 2005 compared to 2004, while overall cattle performance was less than the prior year. Although cattle performance in 2005 was below the prior year's, large year-to-year declines in feedstuff costs kept cost of gain below 2004's.
In 2005, the average closeout weight for steers was 1287 pounds versus 1279 pounds in 2004 and 31 pounds heavier than the prior five-year average (1999-2003). Heifers closed out an average 9 pounds heavier than 2004's. Of note, steers weights peaked in October at 1353 pounds, while heifer weights reached 1203 pounds in December, both were the heaviest monthly weights reported thus far in the series (began in June 1992). Those closeouts weights were consistent with USDA reported U.S. cattle weights, which were up one percent in 2005.
Most of the yearly increase in slaughter weights can be attributed to heavier placements weights. For 2005, steers were on feed an average 152 days, 3 days longer than in 2004 with an average daily gain of 3.33 pounds compared to 3.46 pounds per day the prior year. Heifers were on feed an average 151 days about unchanged with the prior year, with an average daily gain of 3 pounds. The amount of feed per pound of gain (dry matter basis) was 6.10 pounds for steers and 6.28 pounds for heifers, up 3 and 1.3 percent from 2004's, respectively.
Feedstuff costs were lower in 2005, with feedlots reporting an average corn price of $2.37 per bushel, down $0.63 per bushel from 2004's and a hay price down about $2 per ton at $76.07 per ton. As a result, the average cost of gain for steers was $53.11 per cwt., 5 percent lower than 2004's, while heifers closed out at a cost of gain of $55.70 per cwt. down from last years average of $59.76 per cwt. However, compared to the prior five-year average, 2005's cost of gain for both steers and heifers increased about $5 per cwt.
posted by Dr. Harlan Hughes 10:54 AM