1

Monthly Feedlot Packet

Prepared exclusively for CattleFax member feedyards

Sponsored by

March 31, 2017

Quality excellence enables producer success

c

Setting the stage for producer winsProduct quality begins before product is even made at the Optaflexx®Ⓡ production site in Speke, England. State-of-the-art production equipment, highly trained professionals and the best quality ingredients are the keys to success for consistent production. When it comes to feed additive quality and reliability, producers can count on Optaflexx to deliver both.

Kathy Rooney, Elanco site quality leader asserted, “At our production facility in Speke, we view quality as the responsibility of all employees. It is our promise to producers to deliver product with the high levels of quality they expect. Our site mission is to manufacture animal health products while ensuring safety of workers and products, customer satisfaction, and a positive contribution to our community.”

Quality assurance from factory to feedyardFrom sourcing and testing of raw materials to the precision packaging and palletization of Optaflexx, customer satisfaction is top-of-mind in every process at Speke.

“The very high standards of Elanco quality assurance are present in every step of the Optaflexx manufacturing process,” said Rooney. ”We invest heavily in our people and processes to ensure that the Optaflexx we produce can be mixed into a ration that will offer the best performance possible for feedyard producers.”

Optaflexx raw materials are purchased only from approved suppliers and are tested for purity to ensure they meet Elanco’s specifications before they are used to manufacture product. The raw materials are processed with the active ingredient in an automated production system, while ensuring that the product has the required moisture level to provide a reliable, uniform and accurate end-product – maximizing ration uniformity.

The product is then carefully dispensed into bags and weighed to ensure feedyards receive the package weight they expect. A robotic palletizer lays the bags into boxes in a set formation and shrink-wraps the product to minimize movement when shipped to producers. The process is closely monitored by an in-house computer system and all steps of the process are documented. Process operators perform quality checks during the manufacturing process to ensure all product is of highest quality and within specifications.

Rooney emphasized, “Every product quality check and record kept is done to produce and ensure the highest quality product that will deliver maximum results for feedyards.” Anchored in customer commitmentIn addition to the manufacturing process, the Optaflexx production facility prides itself on delivering an exceptional level of customer service and transparency.

“Our facility invites industry professionals to tour the site,” said Rooney. “Guests are given a facility tour and are invited to see our traceability capability in action. Seeing the extent of our manufacturing records and quality analysis leaves guests impressed with the level of quality and the feeling of trust that we strive to convey. We are 100 percent committed to quality assurance at every level of the process — even after the product has left the facility.”

Optaflexx packaging material is carefully designed to ensure product stability through to its expiry date. Each bag carries an expiration date, as well as customer assistance information. Quality assurance processes continue even after shipment — selected batches of Optaflexx are tested over their lifespan to confirm product stability.

“Should a customer experience an issue with our product, we conduct a full review of the manufacturing history to understand if anything may have happened in that particular production cycle,” Rooney said. “Our ultimate goal is — and has always been — to provide producers with the reliability, consistency and trustworthiness of Optaflexx to help their feedyards achieve maximum profitability. Our team of experts is fully committed to making sure we enable success for producers.”

Quality and consistency end to end Optaflexx is a high-reward technology that adds pounds of beef while maintaining an animal’s ability to grade Choice or better.1 The industry has welcomed Optaflexx to drive growth and performance benefits while delivering high quality carcasses to the market. In fact, the industry has benefited from positive momentum in the last two years (2015 and 2016) with greater than 68 percent of fed cattle grading Choice or better—well above the five-year average between 2010-2014.2

Additionally, the first USDA-Certified Tender beef program in the United States allows the use of Optaflexx, demonstrating the viability and usability of the product in supply chains to produce high quality and tender beef products.

The high standards of Optaflexx quality — combined with its top-tier manufacturing processes — drive confidence and support producer goals and objectives end to end. The producer journey to profitability begins with product reliability and ends with the confidence that producers feel in both the high quality and consistent results of cattle fed Optaflexx. To learn more, contact your Elanco sales representative or visit Elanco.us.

USBBUOPT00116

The label contains complete use information, including cautions and warnings. Always read, understand and follow the label and use directions.CAUTION: Not for animals intended for breeding.

Optaflexx: Complete feedFor increased rate of weight gain and improved feed efficiency in cattle fed in confinement for slaughter: Feed 8.2 to 24.6 g/ton of ractopamine hydrochloride (90% DM basis) continuously in a complete feed to provide 70 to 430 mg/hd/d for the last 28 to 42 days on feed.

For increased rate of weight gain, improved feed efficiency and increased carcass leanness in cattle fed in confinement for slaughter: Feed 9.8 to 24.6 g/ton of ractopamine hydrochloride (90% DM basis) continuously in a complete feed to provide 90 to 430 mg/hd/d for the last 28 to 42 days on feed.

Optaflexx: Top dressFor increased rate of weight gain and improved feed efficiency in cattle fed in confinement for slaughter: Feed 70 to 400 mg/hd/d of ractopamine hydrochloride (90% DM basis) continuously in a minimum of 1.0 lb/hd/d top dress Type C medicated feed (maximum 800 g/ton ractopamine hydrochloride) during the last 28 to 42 days on feed.

Key points• At the Optaflexx production site, quality is the responsibility of

every employee

• Every step of the Optaflexx production process carefully analyzes and measures quality to ensure the highest quality product for feedyards

• Elanco is committed to delivering a highly consistent, reliable and trustworthy Optaflexx product to producers to help maximize operation profitability

1 Elanco Animal Health. Data on file.2https://www.ams.usda.gov/sites/default/files/media/Beef%20Quality%20Choice.pdf

Optaflexx, Elanco, and the diagonal bar logo are trademarks of Eli Lilly and Company or its affiliates.© 2017 Eli Lilly and Company or its affiliates.fyfeed 5373-3

1

Risk Management

Seminars

June 21-22, 2017

Please Contact Leigh Ann at

800-825-7525 or

leigh@cattlefax.com

2

CattleFax Analysis

The chart above provides a perspective of fed cattle packing capacity. This chart shows the actual

fed slaughter each week for 2016, what the fed slaughter has been so far for 2017 and a forecast

for the remainder of the year in 2017. It also projects how many cattle would be harvested in a

40-hour work week.

In the fall of 2016, the leverage between cattle feeder and packer favored the packer to historical

margins. The reason being is there was more supply then kill capacity could absorb, or at least

absorb at a historical level of margin or leverage. Consequently, the packer margins were record

large last fall which created enough incentive to harvest the cattle.

The concerns for 2017 are the same. Fed slaughter is projected to be 850,000 to 1 million head

larger than a year ago. The increase in slaughter seasonally into the summer, is projected to be

way above year ago levels. The question becomes how much leverage or margin will the market

bear to the packer for them to harvest these supplies that are projected to that much larger than

2016?

Ultimately this is the risk to the cash market going into the late summer and fall period. There are

several historical data sets, seasonal patterns and fundamental reasons, to suggest the risk to the

cash market is not as large as it was a year ago from the spring high to summer/fall low.

However, leverage and the lack of packing capacity could trump all of that, and prices could

experience a flush to the market similar to what has occurred the past couple of years, roughly

30% and that would imply a cash market back toward the low $90’s.

Bottom Line: The forecast does not call for a break below $100/cwt. into the late summer/fall

based multiple fundamental and seasonal data sets. However, the lack of slaughter capacity will

be what ultimately drives the cash market and how low it gets.

380390400410420430440450460470480490500510520530540550

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

1000

Head

WeeksCattle Fax Projections: 2017 str & hfr slaughterRed bars are holiday weeks

Weekly Steer & Heifer Slaughter 2016 and 2017 YTD/Forecasted

2016 - Line

40-Hour Week

2017-Bars

3

Weekly Average Slaughter Rates and Analysis

Fed Slaughter

The fed slaughter for the most part

has been right on projections for the

first quarter, with March being just a

pinch above forecasts.

The fed slaughter levels are projected

to remain above year ago levels into

the spring period. If packer

maintains positive margins, fed

slaughter has a chance to be better

than forecasted.

Cow and Bull Slaughter

The non-fed slaughter continues to

point at another year of expansion for

the beef cow sector. The regions

concerned with drought have

diminished due to recent moisture.

The dairy cow sector is carrying a

positive margin, this should help

keep the dairy slaughter on par, or

even below year ago levels into late

spring.

410

420

430

440

450

460

470

480

490

500

510

520

530

540

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Head

(1,0

00s)

Wkly. Avg. F.I. Steer & Heifer Slaughter

5-Yr.

16

17

90

95

100

105

110

115

120

125

130

135

140

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

He

ad

(1

,00

0s

)

Wkly. Avg. F.I. Cow & Bull Slaughter

5-Yr.

16

17

520

530

540

550

560

570

580

590

600

610

620

630

640

650

660

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

He

ad

(1

,00

0s

)

Wkly. Avg. F.I. Cattle Slaughter

5-Yr.

16

17

4

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2006 501 475 510 531 578 599 579 556 552 514 534 508

2007 503 510 500 514 566 602 572 562 557 535 528 515

2008 515 499 511 538 599 566 557 540 538 501 498 472

2009 487 488 489 503 566 542 532 517 526 504 494 483

2010 513 499 494 504 539 553 543 534 536 519 521 537

2011 499 510 505 498 528 564 536 525 517 509 495 487

2012 489 469 485 481 519 538 521 511 506 488 499 471

2013 494 450 469 477 506 535 521 502 508 491 486 471

2014 468 433 449 467 499 504 475 474 481 453 453 431

2015 439 421 423 427 474 453 462 442 466 446 448 438

2016 452 423 433 450 480 497 494 482 495 491 502 485

2017 479 459 475 483 510 526 517 501 513

17%16 106% 108% 110% 107% 106% 106% 105% 104% 104% 110% 112% 111%

17%5-Yr. 102% 105% 105% 105% 103% 104% 104% 104% 100% 103% 105% 105%

5-Yr. 468 439 452 460 496 505 495 482 491 474 477 459

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2006 117 101 103 105 104 112 113 119 122 125 133 128

2007 124 120 121 120 121 115 110 113 125 130 137 130

2008 135 120 123 126 133 128 132 137 140 139 146 127

2009 143 132 122 118 129 128 130 130 134 136 145 134

2010 145 127 132 135 140 132 133 130 144 145 154 153

2011 142 135 131 135 135 133 139 142 158 154 158 153

2012 147 131 128 122 128 130 136 134 144 145 154 148

2013 141 129 133 136 138 132 131 126 134 132 140 130

2014 133 118 121 116 115 109 109 108 113 113 122 116

2015 123 113 111 108 106 102 104 99 115 112 117 113

2016 122 114 111 111 111 112 111 110 120 122 126 123

2017 125 123 122 119 120 118 119 119 132

17%16 102% 108% 109% 108% 108% 105% 107% 109% 110% 109% 108% 110%

17%5-Yr. 94% 102% 101% 100% 100% 101% 100% 104% 90% 93% 91% 94%

5-Yr. 133 121 121 119 120 117 118 115 125 125 132 126

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2006 618 575 613 635 683 711 692 675 674 639 667 636

2007 627 630 621 634 686 717 682 675 682 665 665 644

2008 649 620 634 664 732 694 688 677 678 641 643 598

2009 631 620 611 621 695 670 662 647 660 640 639 617

2010 658 626 626 639 679 685 676 664 680 664 675 690

2011 641 645 636 633 662 698 676 667 675 663 653 640

2012 636 600 613 603 647 668 657 645 649 633 654 619

2013 635 579 602 613 644 667 651 628 642 623 626 601

2014 601 551 570 583 614 613 584 582 594 566 575 547

2015 562 534 534 535 581 554 566 541 581 558 565 550

2016 574 537 545 561 591 609 605 592 615 613 628 608

2017 604 582 597 602 630 644 635 620 645

17%16 105% 108% 110% 107% 107% 106% 105% 105% 105% 110% 111% 110%

17%5-Yr. 100% 104% 104% 104% 102% 103% 104% 104% 98% 101% 102% 103%

5-Yr. 602 560 573 579 615 622 613 598 616 599 609 585

WEEKLY AVERAGE F.I. CATTLE SLAUGHTER (1,000 hd.)

WEEKLY AVERAGE F.I. STEER & HEIFER SLAUGHTER (1,000 hd.)

WEEKLY AVERAGE F.I. COW & BULL SLAUGHTER (1,000 hd.)

5

Weekly Average Commercial Beef Production Steer carcass weights have declined nearly 35 pounds since the first of the year. The 5-year average decline

from January 1 to the spring lows is 32 pounds. Cattle feeding profits have cattle feeders pulling cattle ahead

of schedule.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg

2006 489.2 456.7 481.5 487.6 526.6 557.9 548.1 535.3 537.3 510.1 531.1 507.5 514.1

2007 494.0 488.1 478.9 480.6 521.2 555.1 538.3 535.4 544.6 533.8 531.6 510.4 517.7

2008 509.2 486.3 496.5 514.4 562.6 539.9 540.9 535.8 541.4 511.5 509.4 474.8 518.6

2009 500.6 496.5 489.0 486.6 539.7 522.1 522.6 516.3 532.9 514.5 504.0 486.8 509.3

2010 515.5 488.8 483.1 487.9 516.8 529.1 527.0 521.5 537.2 528.2 533.2 546.7 517.9

2011 506.4 505.1 495.1 485.1 508.5 541.7 528.4 521.5 528.4 523.6 512.6 502.6 513.3

2012 504.0 479.2 488.2 474.8 509.0 532.0 525.1 517.5 524.0 512.3 526.6 500.2 507.8

2013 515.7 468.4 482.1 485.5 508.0 534.1 523.2 506.7 518.5 506.5 509.5 488.3 503.9

2014 488.3 447.1 458.2 466.0 489.7 493.5 476.1 478.3 493.4 474.4 480.9 456.2 475.2

2015 464.1 442.0 440.9 439.9 476.8 456.5 470.9 457.3 497.7 480.7 484.0 466.7 464.8

2016 483.7 449.6 457.9 464.2 484.1 500.2 501.3 494.7 519.8 522.4 534.2 513.7 493.8

2017 505.3 483.4 493.3 493.4 517.0 529.3 526.9 519.9 544.4

17%16 104% 108% 108% 106% 107% 106% 105% 105% 105% 109% 110% 110% 106%

17%5-Yr. 103% 106% 106% 106% 105% 105% 106% 106% 101% 105% 106% 106% 100%

5-Yr. 491 457 465 466 494 503 499 491 511 499 507 485 489

WEEKLY AVERAGE COMMERCIAL BEEF PRODUCTION (mil. lbs.)

430

440

450

460

470

480

490

500

510

520

530

540

550

560

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Po

un

ds (

mil

.)

Wkly. Avg. Comm. Beef Production

5-Yr.

16

17

6

Per Capita Net Beef Supply The weekly export data has had a strong correlation with the monthly data since January of 2015.

The weekly suggests exports continue to be very strong through March, up roughly 23%. Seasonally, exports peak in the summer period and this year is not expected to be any different. The

year 2017 is projected to be the 2nd biggest export volume in history, behind 2011.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sum

2006 5.34 4.72 5.72 4.98 5.78 6.13 5.57 6.07 5.35 5.54 5.52 5.12 65.8

2007 5.47 4.86 5.36 5.14 5.72 5.80 5.57 5.96 5.05 5.86 5.30 4.98 65.1

2008 5.34 4.85 5.06 5.33 5.60 5.31 5.46 5.12 5.14 5.38 4.64 5.04 62.3

2009 5.11 4.68 5.13 5.14 5.12 5.37 5.34 5.05 5.11 5.21 4.57 4.87 60.7

2010 4.79 4.45 5.13 4.92 4.79 5.35 5.10 5.19 5.02 4.95 4.85 4.94 59.5

2011 4.68 4.42 4.94 4.54 4.70 5.25 4.61 5.19 4.81 4.80 4.62 4.59 57.2

2012 4.74 4.46 4.88 4.45 5.05 5.03 4.82 5.17 4.37 5.03 4.79 4.41 57.2

2013 5.03 4.15 4.58 4.83 4.91 4.70 4.91 4.80 4.46 5.00 4.43 4.38 56.2

2014 4.67 3.91 4.36 4.63 4.59 4.58 4.65 4.47 4.60 4.85 4.16 4.54 54.0

2015 4.58 4.03 4.52 4.52 4.44 4.63 4.65 4.51 4.80 4.71 4.17 4.41 54.0

2016 4.48 4.21 4.73 4.43 4.51 4.89 4.49 4.96 4.71 4.76 4.74 4.56 55.46

2017 4.59 4.15 5.00 4.37 4.95 5.04 4.53 5.14 4.69

17%16 103% 99% 106% 99% 110% 103% 101% 103% 100% 101% 114% 103% 103%

17%5-Yr. 98% 100% 108% 96% 105% 106% 96% 107% 102% 98% 107% 102% 100%

5-Yr. 4.7 4.2 4.6 4.6 4.7 4.8 4.7 4.8 4.6 4.9 4.5 4.5 55.4

PER CAPITA NET BEEF SUPPLY (retail lbs./person)

3.9

4.0

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

5.0

5.1

5.2

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Reta

il L

bs. P

er

Pers

on

Monthly Per Capita Net Beef Supply

5-Yr.

16

17

7

Cash Market

Cash Trend: The cash market trend is still higher. A trend line violation comes into play at $128

during the second half of April. The cash markets first major support after a trend-line violation

would be $119, followed by $115 and then $110.

Basis Trend: The basis patterns continue to sustain the strengthening trend, albeit it has slowed

during the last couple of weeks. Seasonally, the basis will start to weaken by late April. As it does,

there will be greater risk to the cash than the futures, into the delivery month, as the cash market

seasonally corrects.

Futures Trend: It is difficult to clearly define trends, with record discounts in the live cattle futures.

However, the seasonal suggests the June and August futures market should trend lower into the

months of April and May.

Money Flow/Open Interest: The total open interest has followed a seasonal pattern and is now the

second largest ever in history. Seasonally, open interest peaks during the first week of April. As

open interest goes down the market will follow as well.

Bottom Line: The market has been very directional most of the last 3-years. Once the market turns

over, look for an accelerated pace to the cash market going down. Leverage is the greatest concern

for the cash market. Assuming leverage tracks near the levels set last fall, than cash has risk back

toward the low $100/cwt. level. Spot basis is as unpredictable at this time as any in history. Equity

protection is recommended, as it is hard to tell where the basis will be in the summer/fall.

96

100

104

108

112

116

120

124

128

132

136

140

144

148

1/4

/16

2/4

/16

3/4

/16

4/4

/16

5/4

/16

6/4

/16

7/4

/16

8/4

/16

9/4

/16

10/4

/16

11/4

/16

12/4

/16

1/4

/17

2/4

/17

3/4

/17

4/4

/17

5/4

/17

$/C

WT

DAYS

Daily Kansas Fed Cattle Price

Source: CattleFax

8

Basis Analysis

The April basis has been the strongest ever in history during March. Basis will converge, but it might

not be until late April.

The June basis is record strong. Seasonally, the basis should start to narrow in late April.

The August LC basis is tracking a record strong pattern, but will start to weaken within 30-days.

88%90%92%94%96%98%

100%102%104%106%108%110%112%114%

8-M

ay

29-

May

19-J

un

10-

Ju

l

31-J

ul

21-

Au

g

11-S

ep

2-O

ct

23-O

ct

13-N

ov

4-D

ec

25-D

ec

15-J

an

5-F

eb

26-F

eb

19-M

ar

9-A

pr

30-A

pr

Pe

rce

nt

Ba

sis

Weeks

April Live Cattle Basis - %

Strong Avg. Weak Avg. Avg. Years - Not Strong or Weak 2016 2017

90%92%94%96%98%

100%102%104%106%108%110%112%114%116%118%

8-J

ul

29-J

ul

19-A

ug

9-S

ep

30-S

ep

21-O

ct

11-N

ov

2-D

ec

23-D

ec

13-J

an

3-F

eb

24-F

eb

17-M

ar

7-A

pr

28-A

pr

19-M

ay

9-J

un

30-J

un

Perc

en

t B

asis

Weeks

June Live Cattle Basis - % Strong Avg. Weak Avg. Avg. Years - Not Strong or Weak 2016 2017

90%92%94%96%98%

100%102%104%106%108%110%112%114%116%118%120%122%124%

8-S

ep

29-S

ep

20-O

ct

10-N

ov

1-D

ec

22-D

ec

12-J

an

2-F

eb

23-F

eb

16-M

ar

6-A

pr

27-A

pr

18-M

ay

8-J

un

29-J

un

20-J

ul

10-A

ug

31-A

ug

Perc

en

t B

asis

Weeks

August Live Cattle Basis - % Strong Avg. Weak Avg. Avg. Years - Not Strong or Weak 2016 2017

9

Fundamental/Technical Analysis The accompanying chart is the July/August Composite Cutout Demand Index. The assumptions for

this forecast are supply will be up 2% and the cutout will average $185 for the 2-month period. As

the chart shows, this would be the second worst wholesale demand since 1998. Taking this one step

further, a $185 average cutout and receiving 50% of the cutout on average equates to a cash average

of about $104 to $105/cwt., for July and August. The price Matrix on page 11, has prices with a

$108 average. Leverage and demand will be key to the value of the market going into the summer.

The top chart on the next page is the historical price change to the cash market, from the March/April

period to the July/August period. It also supports the concept, that a market average near $104-

105/cwt., would be extreme. As there has only been 1-year, that the market declined more than 20%

from the spring high to July/August low. However, leverage packing capacity will be the driving

force behind the market. The BOTTOM chart on the next page is the Fed price minus the drop as a percent of cutout. The

leverage will now shift in favor of the packer into the month of June. The concerns will be will the

leverage have to eclipse the levels that were received a year ago. This would result in a lot more risk

to the cash market similar to the last two years as mentioned on the front page.

100

113114

118116118

123

116

119

115

109

92

99

104

107105

128

121

104

98

70

75

80

85

90

95

100

105

110

115

120

125

130

135

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Ind

ex

Year

Jul/Aug Composite Cutout Demand Index

10

48%

49%

50%

51%

52%

53%

54%

55%

56%

57%

58%

59%

60%

1/1

01/2

42

/72/2

13/7

3/2

14/4

4/1

85/2

5/1

65/3

06/1

36/2

77/1

17/2

58/8

8/2

29/5

9/1

910/3

10/1

71

0/3

111/1

411/2

812/1

212/2

6

Fed Price Percent of Composite Cutout10-yr SEASONAL YRS 2016 2017

Source: USDA, *Excludes drop credit

11

Fed Cattle Outlook

April

Historically, the cash market experiences its highs for the first half of the year 43% of the time during

the month of April.

Steer carcass weights should find their seasonal lows during late April. April should also be the

month where the biggest pulled forward occurs as well.

May

Seasonally, the cutout peaks during May at the same time fed slaughter is rapidly increasing during

this period as well.

May is also the period where the leverage is accelerating to favor the packer. All things point to a

result the cattle feeder will be aggressively selling cattle for a number of reasons; cash seasonally

moves lower, the expected strong basis against the June and profitability for the cattle feeder.

June

This is the window for peak of beef demand. Historically, big production and relatively high cutout

values drive the month of June and the result is strong demand. During this period, the cattle feeder

will be at the seasonal low in leverage in relation to the packer.

New crop corn values will become more defined, as the crop most years will be developed enough by

late June.

Third Quarter

Fed cattle supplies, specifically in the Midwest, will be most watched for this time frame. Will

producers pull cattle ahead out of this projected big supply period, profits and basis will drive this

decision.

If there ends up being a leverage challenge during 2017, the latter part of the 3rd quarter is the period

most at risk. Leverage challenge defined as a ratio under 50% when measuring the fed price minus

the drop credit as percent of cutout.

Bottom Line: The cash fed cattle market is in a transition and will move lower from the spring high into

a summer or fall low. Historically, there have been nine years in the last 45 that the cash market declines

more than 20% from your first half cash high to second half cash low. Three of those nine years the cash

lows occurred during the July/August period. Earlier in the packet it was stated that the odds are less than

3% the cash market will decline more than 20% from a high in March/April to a low in July/August. The risk

of the cash market declining more than 20% is past Labor Day, similar to the last two years. This will be

related to the carryover supply and lack of packing capacity. The live cattle basis has been as strong as it has

ever been historically, if this continues into the summer futures will come under more pressure and may test

the contract lows. The three cardinal rules are all positive at this point, keep in mind a year ago cattle feeders

were never profitable. There is a need for equity protection for the current inventory on feed, however due to

the unpredictability of basis options are the best strategy to incorporate at this time.

MAR APR MAY JUN JUL AUG SEP

LOW $125 $123 $118 $109 $107 $104 $103

AVG $128 $126 $121 $113 $109 $107 $106

HIGH $132 $129 $123 $116 $112 $109 $109

CattleFax Fed Cattle Price Outlook

12

Feeder Cattle Analysis

All producers inclined to manage risk should continue to develop their risk management plan for

feeder cattle and these variables listed below should be included in that discussion:

Seasonality

Cash Trends

Live Cattle Basis

Futures Trends

Money Flow

Technical Objectives

Feeder – Fed Cattle Spread Trends

Forward Crush Opportunities

The chart below is the spot daily weekly feeder cattle. The key moving averages, 100 & 40 day have

turned higher. The deferred live cattle will be the driving force behind the value of feeder cattle, but

technically this is something that needs to be monitored closely.

There will be more cattle becoming available going forward into the spring as placements will

increase into the month of May and this should put pressure on the feeder cattle market, resulting in

this being a false breakout.

13

Feed Grains Analysis

The prospective plantings report was issued and corn acreage projected to be at 90 million acres. As

the chart above shows, stocks to use levels has been sustained above 12% nearly every month since

the May of 2014 projections. And for the most part price has averaged below $4.00 a bushel for spot

corn futures.

That could change dramatically with the recent plantings report. The dramatic decline to acreage,

now shifts everything to production and ultimately yield.

A trend line yield of 170 is adequate to keep stocks to use levels above 12%, however a yield at 165

shifts stocks to use levels back to near 10%.

Risk managers should evaluate their corn position. Buying call options might be the best strategy to

protect against the worst case scenario of a below trend line yield.