The Market Report

April 24, 2018

I was getting reports from the video sale last week all day long.  Comments like, “these cattle were too cheap, these cattle were $5.00 higher than others the same weight, is this what we can expect out of the market this spring?” Because there were so many different questions from so many people I finally said let me look at the numbers and I’ll try to address it in the market report. Well here goes.

There are two terms we often hear discussed that seem the same but aren’t so I want to explain the difference in the two terms. When we talk about a down market we are actually in an oversupply situation with demand below the supply and those markets don’t recover until demand exceeds supply. In our business that might mean more exports that increase demand or the end of liquidation which will decrease supply.  The other term is a negative market. That term is used when a lot of people for various reasons think the market is going lower in the future. A good example of that is how our fat cattle market has been acting on the Futures. It’s been lower all spring and actually got as low as $97.00/cwt. There might be some reasons for the futures to go down but it’s more psychological than factually driven. In this market no producer has been selling fat cattle out front because they think the market is going lower. As a matter of fact the current cash fat cattle market is $120/cwt. and the futures trading at $103/cwt. So we call this a negative market and surely different than a down market.

Next I want to discuss what has been happening on the video sales this spring. Whenever you sell into a negative market you can expect some big fluctuations because some think there is justification for the negativity even if it’s just a chance to buy at lower prices. While there are others that just might need cattle and are willing to pay whatever it takes to get them on that day. I think these sales have been mostly price driven and therefore that helps to explain some if not all the fluctuations.

Now about the questions on prices. To start with, the real market cannot be best shown in these video sales for coast cattle. When you use quality bulls, have a good vaccination program, use the proper minerals and have a good feed program these cattle are worth more. EID tags makes these cattle eligible for special programs and that again adds value to those cattle. It has never been the focus of selling cattle on the video or those that represent the video sales. That limits the participation of the people that feed those cattle and drive the markets for coast cattle.

Again when we talk prices it helps to understand a video sale is nothing more than a forward contract. You use forward contracts when you think the market is going lower. So the real question is are we going lower? To start with there has been a lot of negativity in the market. Because the futures is also a forward contract selling cattle now into a negative market makes no sense. That again is using a forward contract to sell for less into a negative market. There are very few feeders that think their fat cattle come June will sell much lower than they are trading today.  So if there is negativity in the market where is it coming from?

It’s the big funds with millions of dollars trading cattle and they wouldn’t even know what a fat steer looked like. It’s my opinion these people have brought the negativity to the market. I don’t know of any feeder or producer that is selling the market right now. So we can blame this negativity on those trading cattle futures. Cattle that sold on the video any time this spring were selling into this negative market. I think that’s one reason for so much variation in those sales. If you sold cattle on the video for future delivery into a negative market you shouldn’t be surprised at any of the things that happened in those sales.

So now if we can understand some of the basic factors in the market then it will help us to understand where we are and where we might be headed. Because there are  about 7 % more fat cattle available for sale in the next two months we might see these cattle sell a little lower but exports have been taking the excess like clockwork, and unemployment in the US is at an all-time low and our demand nationwide is good so perhaps not. After that there are 10% fewer cattle on feed for the 3rd quarter this summer. There goes the negativity in our market. There is some optimism in the market but we might need to dig below the surface to see it. The numbers of stocker cattle available to go to grass this spring is definitely less. So both stocker and feeders competing for the same cattle should drive the market higher. We have already seen some evidence of that competition when 700# steers are headed to grass. We think feeders will be active on the market also because of the 10% less cattle on feed. Stockers will be up because they have lots of cheap feed. They both need inventory. So I think we can move away from a negative market to higher prices at any time.

So when we think of marketing our cattle which method do we choose and when do we do it?  The video sales are a forward contract and it’s sometimes good to sell out front when we have huge inventories and the back month contracts are selling higher than the current cash value of cattle. Everyone is on the same page thinking there will never be a bad day in this market. However, selling out front into a negative market wouldn’t make sense to me. Fear can also be a factor in selling out front. If the people you’re getting advice from are predicting a lower market fear could force you to sell into a negative market. In the past both of these factors have also affected price and the result is some big fluctuations on forward contracts. So our advice is don’t sell into a negative market for future delivery in any form.  Be it individual contracts for future delivery, internet sales, the video, or the futures market. Especially when there are so many indicators that point to a higher market in the future. If you’re going to sell your cattle take a lesson from the feeders. They are selling nothing on a forward contract. They think if they are going to sell cattle for less, then they will wait till the day the cattle are fat to sell because there is little down side to waiting when the back futures are selling at such a discount.

We would also miss the boat if we didn’t talk about coast cattle. These cattle have always had quality. We have spent over 30 years defining these cattle and developing markets for them. Making sure they have the right vaccinations, minerals, quality bulls, then selling them in the best climate in the entire west to a complete new set of buyers. Buyers sitting in the wings just waiting for the run to start because these cattle don’t get sick, they feed more efficiently, and have big carcass figures.  Data you can go to the bank on. While other markets sell these cattle at a discount we sell them at a premium because they are worth more. The sort alone at The 101 Livestock Market will put more money in any sellers’ pocket, rather than just bunching them up and loading the truck. The best feed, water and climate are all part of the equation that sets 101 Livestock apart from the rest.

We hope this helps to explains some of the price fluctuations on forward contracts, the difference between a negative market and a down market, where we might be going from here on and why coast cattle have to have a marketing plan to get real value for them. Don’t hesitate to call us if you have questions.

 

Special Feeder Sales

Tuesday May 8, 2018

Tuesday May 22, 2018 TL/Leachman Sired

Tuesday June 5, 2018

Tuesday June 19, 2018 TL/Leachman Sired

 

Here are some representative sales from this week’s auction:


575# steers sold for $175.00

325# steers sold for $215.00

870# steers sold for $129.00

The heifers were too few to quote. However, next week there will be more cattle and perhaps be easier to quote them. We’re excited for all our customers and their support

 

 

 

 

 

 

**Save the Dates**

Special Feeder Sales

Tuesday May 8, 2018

Tuesday May 22, 2018 TL/Leachman sires

Tuesday June 5, 2018

Tuesday June 19, 2018 TL/Leachman sires

 

Steers
Weight Avg/cwt High/cwt
300-399
400-499
500-599
600-699
700-799
800-899
Heifers
Weight Avg/cwt High/cwt
300-399
400-499
500-599
600-699
700-799
800-899
Cow
Grade low/cwt High/cwt
Cutters $55 $62
Boning Utility $67 $70
Breakers $66 $68
Program Cows $70 $74
Bulls
Grade Low/cwt High/cwt
High Yield $82 $90
Others $72 $80