Early cash price activity was strong from reporting sale barns; however, by late week prices had weakened. Overall prices were higher than the previous week, even as CME Futures prices declined more than $7.50/cwt from Monday to Friday’s close. Live cattle traded $3.50 lower on the week on light demand.
Carcass weights for live cattle are following the seasonal trend, increasing from their spring lows, but interestingly they are 8 lbs heavier than 2010 and the five year average. Corn ended a bullish week essentially offsetting all downside price action that occurred over the last three weeks. Reports of extended heat and unlikely showers for the majority of the corn belt supported the rally as pollination concerns grow.
Given all of this, projected breakevens for live cattle do not appear favorable. Feeder cattle demand remains strong, along with prices, grain costs are not weakening and it appears that mid-summer cattle prices are weak. In addition, basis in the cash corn market continues to increase, thereby adding more stress to cattle feeders that do not have their basis price locked in. It appears that demand for cattle that will finish in late 2011 and early 2012 is high, as the price differential for heavy vs. lighter weight cattle is relatively narrow.
(Click on chart to see larger version)
Weekly USDA feeder cattle prices for TX and OK were used to calculate projected breakevens on cattle bought last week, week ending July 15, 2011. Breakevens were calculated for each weight group within sex (steer and heifer). Ration price, $/ton dmb, was estimated at $320. Other variables including interest, yardage and % feed financed were estimated to be 6%, $0.05/d and 100%; respectively. As it is known that actual input estimates will vary greatly by region and by yard within region, our goal is to illustrate pricing differentials between weight classes and sexes of cattle.