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Why the Choice-Select spread matters to you

Jun 22, 2016by  in BEEF Editors’ Blog

Many a cow-calf producer has declared that the packer reaps the rewards from the high-quality genetics produced on the ranch. The math tells a different story.

“It’s been declared in many a cow camp and auction barn café, ‘I sell calves, and the packer is the one getting all of the premiums for my high-quality genetics,’” observes Paul Dykstra, beef cattle specialist with Certified Angus Beef (CAB). To determine whether or not that’s true, Dykstra did a little mathematical noodling to figure out what the recent $23 per cwt Choice-Select spread would do to improve the feedyard’s grid premium-discount structure for Choice carcasses.

The national average is about 70% of the fed cattle will grade Choice. Since packers are willing to pay for above-average cattle, Dykstra took the remaining 30% from 100% and multiplied by the Choice-Select spread to arrive at the premium for each Choice carcass. The resulting carcass premium was $6.90 per cwt using the $23 per cwt spread (Figure 1).

“Take that back to the rancher’s pocketbook with the other math in the table and you can see it puts an added $9.10 per cwt. premium there, on top of the price for a 650 pound steer, provided that two or more buyers are competing to own these Choice-grading type cattle,” Dykstra says.

A more typical $8 per cwt Choice-Select spread contributes about 3.30 per cwt to the bottom line on that 650 pound steer, he says. So the near-record spread we’ve seen of late makes the numbers look much better than the average Choice-Select spread. But a premium is a premium and often is worth pursuing.

But the Choice-Select spread isn’t the only quality-based premium out there. “That’s why we’ve got to consider the additive value of Choice premiums with perhaps 10% or more Prime carcasses at $18 per cwt. over Choice and let’s say 50% CAB carcasses at $5 per cwt over Choice,” Dykstra says. “We’re quickly back to adding almost $8.90 per cwt to the value of our 650 pound steer, even with the ‘normal’ $8 per cwt Choice-Select spread. But maybe ‘normal’ is out the window.”


The U.S. Cattle Inventory Report: July 2015

SEcattleAdvisor_no_bkgd.18b4262The semi-annual U.S. Cattle Inventory Report was released on July 24, 2015 by the National Agricultural Statistics Service (NASS). This report confirmed that U.S. herd expansion is continuing. The report saw significant increases in every category except the category of Bulls, 500-pounds and over which remained unchanged from a year ago, as shown in Table 1.

U.S. Cattle Inventory

The Total Cattle Inventory (All Cattle and Calves) in the U.S. as of July 1, 2015 totaled 98.4 million head, increasing by 2.1 million head (2.2%) above the 96.3 million head on July 1, 2014. Cows and heifers that have calved totaled 39.8 million head, increasing by 800,000 head (2.1%). The nation’s beef cow herd (Beef Cows that Calved) totaled 30.5 million head, increasing by 750,000 head (2.5%) above July 1, 2014. This level of growth suggests that more cows are being retained in the cowherd. This trend is expected to continue for the remainder of 2015 and likely well into next year due to continued improvement in pasture and range conditions and strong cow-calf profitability sending signals to cow-calf producers to increase their herd size.

Heifers, 500-pounds and over totaled 15.9 million head, an increase of 300,000 head compared with a year-ago. Beef Replacement Heifers grew by 300,000 head (6.5%) to 4.9 million head from last year’s mid-year report. This is the largest percentage increase since 1986 which confirms that cow-calf producers are growing their herds through heifer retention. Steers, 500-pounds and over totaled 14.1 million head, an increase of 400,000 head (2.9%). Bulls, 500-pounds and over were unchanged from a year-ago at 1.9 million head.

Calves, under 500-pounds totaled 26.7 million head, an increase of 600,000 head (2.3%) compared with July 1, 2014. The Calf Crop totaled 34.3 million head, increasing by 400,000 head (1.2%) from a year ago. Feeder/Calf Supply totaled 35.5 million head, increasing by 700,000 head (2.0%). The U.S. Cattle on Feed, All Sizes was 12.1 million head, increasing by 200,000 (1.7%) head from a year-ago.

The U.S. calf crop has shown a continuous decline from 40.3 to 33.7 million head (-19.4%) between 1995 and 2013, as shown in Figure 1. The U.S. calf crop documented increases in 2014 and 2015 which totaled 570,000 head (1.7%). The last time the calf crop grew in two consecutive years was 20 years ago during 1994-1995 which was the last major herd expansion phase.

U.S. Calf Crop

The U.S. cattle cycle finally appears to be turning the corner with larger calf crops and cattle inventory numbers. The results of the January 1 and July 1 cattle inventory reports have made it clear that expansion is taking place by retaining more beef cows and replacement heifers. This continued beef herd expansion will be moderately bearish on cattle prices during the next couple of years. Remember, that changes in cattle inventory will be slow due to the size of the beef industry and the reproductive biology of cattle.

Jul 27, 2015 09:34 am | Chris Prevatt

Original Article: http://www.secattleadvisor.com/2015/07/27/the-u-s-cattle-inventory-report-july-2015/


Live Cattle Futures Report for the week of 10/24/14 via Blue Reef Agri-Marketing

Wide daily trading ranges in Live Cattle suggest the market is getting tired and looking for new information to continue the sharp incline it’s experienced over the last 2 months. December and February worked into new highs twice last week but failed to maintain their gains. Even $5+ higher cash trade was only enough to excite the market but not give the confidence to hold. Technically the market has not changed the long term upward rotation. However, the market is in a situation of how steep, how long can we continue the short term curve. With a violation of the short term trend, breaks can be quick and potentially deep. Supplies of Fed cattle are expected to stay tight through the balance of 2014. With this market tone will still be driven by the large managed money positions.

The USDA released their October cattle on feed report Friday afternoon. Overall this again was in line with average trade estimates.

% of Last year

USDA    Trade Est

Cattle on Feed – Oct 1                     99.5%      99.7%

Placements during Sep                    101%      101.4%

Marketing’s during Sep                    99.5%      99.2%

This is intended for informational purposes only. Trading may not be suitable for all investors and may involve substantial risk of loss. You should fully understand those risks prior to trading. Past financial results are not necessarily indicative of future performance.  If you would like additional market advice please contact:

Blue Reef Agri-Marketing, Inc

www.Bluereefinc.com

309-550-7213

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Live Cattle Futures Report for the week of 10/3/14 via Blue Reef Agri-Marketing

Cash traded late in the day Friday with light volume. Texas traded $162 and Kansas $160-162. Nebraska reported sales of $250-252 Hot Weight. The packers then raised the bids late in the day to $163 and were still unable to find enough sellers to fill their needs. There is much discussion in the trade about poor packer margins and their ability to maintain slaughter. Many believe that we may see the closing of another plant or at least see a long term shortening of hours. Futures posted good gains last week with December up $3.775. Interesting to note that majority of the futures buying last week came from the commercial side and not the funds as many had expected. As of this morning Live Cattle Futures are posting modest gains but are facing strong resistance as they try to work higher. The futures will closely watch the cash trade this week, as it is expected the packer will need to come to the market vs using up all their contract cattle.

10-6-14

This is intended for informational purposes only. Trading may not be suitable for all investors and may involve substantial risk of loss. You should fully understand those risks prior to trading. Past financial results are not necessarily indicative of future performance.  If you would like additional market advice please contact:

Blue Reef Agri-Marketing, Inc

www.Bluereefinc.com

309-550-7213

bluereef_logo.png


Live Cattle Futures Report for the week of 9/19/14 via Blue Reef Agri-Marketing

The USDA released the September Cattle on Feed Report Friday. Cattle and Calves on feed as of September 1, 2014 totaled 9.8 million head, 1 percent below last year and 5% below the 5 year average. Placements during August totaled 1.72 million head, 3 Percent below 2013. Marketings of fed cattle during August totaled 1.69 million head, 10 percent below 2013. Both Placements and Marketing were the lowest reported since the series began in 1996. Cattle on Feed and Marketings were right in line with the average trade guesses. However, August placements were about 1% higher that the trade expected. These results are based from surveys of feedlots with 1,000+ head in 16 states. As of this Monday morning this has given some pressure to Live Cattle Futures. Futures are down between 50-75 points with more pressure to the deferred months.

 

Cattle on feed sep 2014

Source: FC Stone

This is intended for informational purposes only. Trading may not be suitable for all investors and may involve substantial risk of loss. You should fully understand those risks prior to trading. Past financial results are not necessarily indicative of future performance.

 

If you would like additional market advice please contact:

Blue Reef Agri-Marketing, Inc

www.Bluereefinc.com

309-550-7213

bluereef_logo.png