Sale barn receipts continued to weaken for the week ending July 22, 2011. Cash trade for live cattle was weaker, at $108.50/cwt and corn finished the week slightly higher, and managed to maintain prices levels above $6.80/bu (basis December).
Basis in the cash corn market reached +1.25/bu in some feeding regions, this has pushed cost of gains to levels only seen during the first two weeks of June. In addition to the volatility in the corn market, the basis for late summer and new crop corn will probably continue to be problematic. Although live cattle trade was much softer last week, the live cattle futures board maintained itself and basis last week ranged anywhere between -$0.70 to -$2.00/cwt.
Cattle feeding margins continue to deteriorate in the near term, high feeding costs along with heat and lower cash price has pushed many closeouts well into the red. It remains to be seen if we have made our summer lows, given seasonal trends that may be unlikely. However, unless the basis characteristics change, even a rally in cash price may not spell relief for the cattle feeder.
Continued liquidation of cattle outside of confinement is likely as heat and drought persists through a large portion of cow and stocker country. At this point, there is little room for any improvement in grass conditions and worry is beginning to mount concerning winter wheat. If drought persists, it is likely that we may not see much of a fall run on stocker weight cattle as these cattle are already making their way to market.
(Click on chart to view it larger.)
Weekly USDA feeder cattle prices for TX and OK were used to calculate projected breakevens on cattle bought last week, week ending July 22, 2011. Breakevens were calculated for each weight group within sex (steer and heifer). Ration price, $/ton dmb, was estimated at $325. 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.