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continued on page 4

Leverage: The Biggest Market RiskThe fed cattle cash market

has gone through a historically impressive 27 percent rally from its second half 2016 lows – reaching $125/cwt. in recent weeks. Much of the gain has come as cattle feeders gained bargaining position – or leverage – over the packing segment with cutout values only rallying 17 percent during the same time.

CattleFax anticipated cattle producers would gain bargain-ing position throughout the fall and winter. It is a trend that is largely seasonal. Over the last four months, weekly average fed cattle slaughter has declined from 504,000 head in November 2016 to 459,000 in February.

Producers need to monitor the relationship between fed cattle prices, beef cutout values and expected fed cattle slaughter increases closely throughout 2017. Changes in these factors have been dramatic over the last three years – regardless of whether the market was trending higher or lower.

An argument can be made cattle prices broke too low in fall 2016, and the extreme leverage shifts in the last 12 months support that claim. The ratio between the weekly fed cattle price and composite cutout value (minus the hide and offal value) declined 15.6 percent in 2016. The chart on the back page shows seasonal ratio changes since 1992, and the 2016 decline is second only to 2003 at 19.2 percent. Then, the ratio increased 18.4 percent from

Market HighlightsFed cattle trade in the South occurred at $124 to $125 this week, steady with last week. Cattle in the North traded at $124 to $127, steady to slightly higher compared to last week. Dressed trade occurred at $200 to $204 this week, steady to $4 higher. There were active trade levels across all regions with trade mainly occurring on Wednesday. Record-large basis levels continue as live cattle traded $7 to $10 over the April live cattle futures this week. Fed cattle supplies will remain limited over the next 15 to 30 days with supplies tightening in the North and increasing in the South. Boxed beef continues its rally higher. Choice product was quoted $7.21 higher this week and Select was $5.28 higher.

Trade data for January was released this week. U.S. beef exports were 21 percent higher compared to a year ago, while imports were down 25 percent. Pork and broiler exports also increased 20 and 12 percent, respectively. Feeder cattle were mostly steady this week. However, they were mixed from $2 lower to $2 higher, depending on the timing of the sale. Calves were mostly steady to $2 higher this week. Market cows traded $2 to $3 higher. Corn was sharply lower this week, closing 15 to 16 cents lower. This week's USDA WASDE report estimated corn usage for ethanol 50 million bushels higher, while corn for feed and residual was estimated 50 million bushels lower. Estimated stocks-to-use levels remain unchanged at 15.9 percent.

This Issue of CattleFax Proudly Sponsored by:MARCH 10, 2017 | issue 10| vol. XXXXIX

Very current

Current

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Currentness that low to the 2017 high. The second-largest improvement, with the highest being 24.4 percent from 2003 to 2004.

The single biggest reason for bargaining position losses in 2016 is limited fed cattle packing capacity. Processing facilities were stretched to limits and labor constraints challenged throughput. Cattle feeders were left paying the bill to encourage plants to run longer weekend shifts to absorb the additional cattle. There is risk the same scenario occurs in 2017. Fed cattle slaughter is expected to reach a weekly average peak of 520,000 head per week this summer, and year-over-year gains in slaughter are expected through the third quarter.

Unlike the pork and chicken industries, there are no plans for new beef processing capacity to absorb the additional cattle coming to market. Focusing on this year, plants will need to increase Saturday slaughter capacity to 40,000 or 50,000 fed cattle. This compares to a 30,000 head average during non-holiday weeks from April to December 2016. Peak weekday slaughter will need to be near 95,000

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Steer carcass weights are down 3 pounds at 878 andare 9 pounds below last year.

Page 2

Projected Fed-Cattle Marketings (000 Head) 10-Mar-2017 Adj. Wkly Placed Pre Mo Begin Mo Carry- Net Avg % of Against Carryover Inv Shipments Over % Weeks Shipments Yr AgoMAR 714 442 1156 801 34 4.6 124 104APR 655 413 1067 723 36 4.0 128 104MAY 741 389 1139 855 29 4.4 138 100JUN 864 341 1205 866 32 4.4 140 103JUL 887 399 1285 837 38 4.0 149 101AUG 797 513 1309 928 33 4.6 143 100

will increase moving forward. Packer margins will be positive resulting in increasing harvest levels. Look for the strongest prices early with a pullback late, ranging between $120 and $126.

Mid-April-May: With an additional 700,000 head of placements in November-January, the seasonal increase in fed cattle supplies will be larger than normal. Continued currentness will be critical to keeping the front-end supply manageable. Seasonally, beef usage increases moving through the spring. Strong basis levels will keep cattle feeders willing sellers and could accelerate the downtrend in the market. Look for prices near $120 early. Then, a softer trend will develop as the market transitions into the larger fed supplies.

June-August: Placed-against supplies are well above year-ago levels. Present slaughter projections will test the packing capacity. Seasonally, beef usage slows moving through the heat of the summer. Larger total protein supplies will be noted. Prices are expected to be on the defensive. Kevin Good

Demand Stays Strong The Choice boxed beef cutout was

quoted $7.21 higher this week, while Select product over the same period advanced $5.28. Buyer resistance was expected coming into the week, but failed to materialize.

During the previous three weeks, boxed beef prices have increased nearly $25. With that kind of an advance, at a time when spring demand has not fully kicked in, buyers typically will back away from the market for a moment. So far, supplies remain more limited than buyers expected. Stronger export levels and a warmer early spring may keep product from backing up in the market channels.

Next Week: Production may begin to increase, and demand is still seasonally slow. The result could be a cutout that is near steady. Choice boxes are expected to trade between $216 and $220, Selects from $210 to $214. Duane Lenz

BeefComplex

Fed-Cattle OutlookCa

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Historically Strong Basis ContinuesThe cash market remains solid, supported by friendly market fundamentals.

At the same time, futures markets are trading a severe discount – anticipating a larger fed cattle supply this summer and a relatively limited packing capacity. The result is continued record-wide basis, which is encouraging cattle feeders to pull cattle forward. Packer margins remain positive – encouraging stronger fed cattle slaughter levels. This should enable the market to smooth out some of the larger placed-against supplies anticipated this summer. Currentness is critical moving into the larger spring and summer supplies. A more aggressive shipment pace can keep carcass weights below year-ago levels and limit the market’s downside risk. The Northern feeding regions are enjoying a price premium to the Plains. This is fairly seasonal due to Northern supplies tightening and fed cattle supplies in the Plains increasing. This trend normally continues through the spring.

Next Week: Fed supplies will remain manageable. Look for the beef complex to stall after the recent rally. Historically wide basis will continue. The market is expected to trade near $125 in the Plains, with continued premiums noted in the North.

Late March-Early April: Placed-against fed cattle supplies are manageable, although with continued strong basis, cattle will be pulled forward and offerings

1 Vista product labels and Bovi-Shield Gold One Shot product label2 Pyramid 5 + Presponse product label

merck-animal-health-usa.com • 800-521-5767 Copyright ©2016 Intervet Inc., doing business as Merck Animal Health, a subsidiary of Merck & Co., Inc. All rights reserved. 3/16 BV-VST-54085-R

NO OTHER PRODUCT CAN MATCH THE PROVEN DURATION OF VISTA® ONCE.1, 2

Vista Once, Vista 5, and Vista 3 vaccines demonstrate protection for 365 days against IBR and BVD Types 1 and 2 — 86 days longer than Bovi-Shield Gold One Shot.1 Pyramid®5 + Presponse® protects against BVD Type 1b for 217 days.2

All Vista vaccines are labeled for use in pregnant cows and calves nursing pregnant cows.

Vista Once and Once PMH® SQ also provide 16-week protection against Mannheimia haemolytica and Pasteurella multocida – the only products with duration claims against these respiratory bacteria.

Ask your veterinarian for Vista vaccines. It’s the only name that matters when protection matters most.

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

Monthly Totals (000 hd)2016 539 504 546 2015 567 507 599 602 572 524 555 460 5672017 584 492 191 2016 515 582 599 590 656 606 528 562 514

Weekly Averages (000 hd)2016 128 120 119 2015 129 127 136 137 136 125 126 115 1292017 139 123 119 2016 123 138 136 148 143 144 126 134 12217%16 109 103 100 16%15 95 109 100 108 105 115 100 117 9517%5Yr 103 95 93 16%5Yr 96 99 92 99 99 104 100 108 88

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

Monthly Totals (000 hd)2016 487 582 645 2015 561 548 470 518 555 580 661 473 4962017 553 525 243 2016 495 641 538 467 652 601 595 577 532

Weekly Averages (000 hd)2016 116 138 140 2015 128 137 117 118 132 138 150 118 1132017 132 131 152 2016 118 153 122 117 142 143 142 137 12717%16 114 95 109 16%15 92 112 104 99 108 104 95 116 11217%5Yr 104 101 109 16%5Yr 98 101 100 87 99 96 95 102 100

Fed Cattle Prices 10-Mar-2017 Live Hot-Wgt Live Hot-Wgt Trade Contract Steers Prices Heifers Prices Volume Formula

PANH 124-125 N.T 124-125 N.T 74,000 87%KS 124-125 N.T 124-125 N.T 84,000 68%NE 124-127 200-204 124-127 200-204 85,000 75%CO* 125-126 N.T 125-126 N.T 20,000 90%CB 124-130 200-204 124-130 200-204 20,500 0%PNW* N.T N.T N.T N.T 0 0%SW N.T N.T N.T N.T 0 0%

Price ranges reflect the last best test for average choice to high quality cattle.*Includes all reported Canadian Imports

Contract and Formula Cattle 10-Mar-2017 Scheduled Shipped Scheduled Scheduled in in in in March March April May

Kansas 225,000 89,000 240,000 240,000Texas 230,000 98,500 235,000 235,000Colorado 80,000 30,000 85,000 85,000Nebraska 215,000 80,000 220,000 220,000Totals 750,000 297,500 780,000 780,000 Basis Bids April May JuneSteers +$2 to even +$3 to +$2 +$2 to evenHeifers +$2 to even +$3 to +$2 +$2 to even

1 Vista product labels and Bovi-Shield Gold One Shot product label2 Pyramid 5 + Presponse product label

merck-animal-health-usa.com • 800-521-5767 Copyright ©2016 Intervet Inc., doing business as Merck Animal Health, a subsidiary of Merck & Co., Inc. All rights reserved. 3/16 BV-VST-54085-R

NO OTHER PRODUCT CAN MATCH THE PROVEN DURATION OF VISTA® ONCE.1, 2

Vista Once, Vista 5, and Vista 3 vaccines demonstrate protection for 365 days against IBR and BVD Types 1 and 2 — 86 days longer than Bovi-Shield Gold One Shot.1 Pyramid®5 + Presponse® protects against BVD Type 1b for 217 days.2

All Vista vaccines are labeled for use in pregnant cows and calves nursing pregnant cows.

Vista Once and Once PMH® SQ also provide 16-week protection against Mannheimia haemolytica and Pasteurella multocida – the only products with duration claims against these respiratory bacteria.

Ask your veterinarian for Vista vaccines. It’s the only name that matters when protection matters most.

PROTECTS DAYS LONGER THAN Bovi-Shield Gold One Shot.™1

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WEST STEERS WA 400 868 CH Eng X 122.50 IMM ID 400 515 CH Eng X 153.79 OCT ID 350 570 CH Eng X 148.06 OCT WA 2200 875 CH Eng X - DEL 124.00 JUN WA 2200 875 CH Eng X - DEL 124.00 AUG

WEST HEIFERS WA 2200 825 CH Eng X - DEL 120.00 JUN WA 200 825 CH Eng X - DEL 120.00 AUG ID 300 487 CH Eng X 142.70 OCT

CENTRAL STEERS KS 200 800 CH Eng X 125.00 IMM SD 150 825 CH Eng X 124.00 IMM TX 3200 819 CH Eng X 120.62 MAY TX 1500 800 CH Eng X 121.70 APR WY 300 800 CH Eng X 124.50 MAY

CENTRAL HEIFERS KS 150 675 CH Eng X - DEL 127.00 IMM TX 3400 725 CH Eng X 120.27 IMM TX 1500 711 CH Eng X - DEL 119.58 APR NE 1000 759 CH Eng X 123.51 IMM

SOUTH STEERS GA 350 825 CH Eng X 118.75 IMM GA 200 875 CH Eng X 116.50 IMM

SOUTH HEIFERS GA 250 725 CH Eng X 113.00 IMM

Area # Hd. Wt. Breed Type Price Del.

How Will You Market the 2017 Calf Crop?

WA/OR CO MT/WY CA NV/UT AZ/NM /ID AL AR FL GA LA/MS KY/TN

Wts9-108-97-86-75-64-5

8-97-86-75-64-5

UtilCn/CutBulls

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8-97-86-75-64-5

UtilCn/CutBulls

Wts9-108-97-86-75-64-5

8-97-86-75-64-5

UtilCn/CutBulls

STEER115-120 117-122 114-120 113-119 110-119 111-120120-125 120-128 118-124 117-126 115-123 118-127129-135 129-137 124-131 123-131 123-130 122-132147-156 141-154 136-147 135-147 134-151 134-148161-172 159-173 148-160 147-166 146-167 152-167168-180 168-182 159-172 158-179 157-175 164-180HEIFER113-118 112-118 108-115 107-116 107-114 107-117120-126 116-128 113-121 112-124 112-121 114-125126-135 124-137 116-127 115-133 114-130 120-134134-145 134-148 130-142 129-145 128-140 131-146145-157 144-159 144-158 134-157 140-156 132-149COWS62-72 55-67 67-74 61-72 60-70 63-7252-62 45-58 56-63 53-61 51-61 52-6180-90 78-91 74-84 69-81 72-88 69-82

STEER114-120 114-120 119-124 120-125 114-120 119-124117-125 117-127 122-127 123-128 118-126 123-128123-131 125-133 131-137 134-140 127-135 132-138134-144 137-147 143-152 143-152 142-152 137-146150-162 152-166 161-172 156-167 150-162 157-168167-181 168-190 170-182 164-176 173-187 166-178HEIFER109-117 110-121 114-119 116-121 110-118 116-121113-121 113-124 118-124 120-126 113-121 118-124116-126 119-131 126-135 126-135 124-134 123-132130-142 131-145 134-145 132-143 132-144 135-146142-156 138-161 146-158 152-164 141-155 148-160COWS57-63 63-74 62-72 62-72 64-71 61-7151-60 55-71 53-63 53-63 63-69 51-6182-92 85-95 84-94 82-92 85-94 79-89

STEER108-114 112-118 107-113 109-115 109-115 111-117112-120 116-124 111-119 113-121 113-121 115-122116-124 120-128 114-122 116-124 117-125 119-127125-135 135-145 122-132 124-134 124-134 126-136142-154 150-162 135-147 137-149 137-149 143-155152-166 166-180 149-164 151-165 150-164 151-164HEIFER105-111 108-114 103-109 105-111 105-112 106-112108-116 110-118 104-112 106-114 106-114 109-117111-121 117-127 107-117 109-119 111-121 114-125116-128 124-136 111-123 113-125 115-127 120-132126-140 138-152 121-135 123-137 125-139 130-144COWS58-66 58-67 61-69 62-70 59-69 56-6256-61 55-63 56-63 57-64 50-60 54-6080-88 80-91 86-93 88-95 82-92 80-86

West — Feeder cattle were mixed from $1 lower to $2 higher this week. Calves were steady to $2 lower. Market cows were $2 higher this week. — Ethan Oberst

Southeast — Feeder cattle were mixed from $2 lower to $2 higher this week. Calves were steady. Market cows were $1 higher this week. — Ethan Oberst

Central — Feeder cattle traded $2 on both sides of steady for the week, but were mostly steady/firm. Calves ranged from steady to $2 higher. Market cows were $1 to $3 higher. — Troy Applehans

TX KS/MO ND/SD NE OK IA

Feeder Cattle Prices 10-Mar-2017 West & Northwest Central Southeast

Page 3

It is never too early to develop a marketing or risk management plan for your calf crop. There are numerous methods and or ways to protect price, in addition to capturing the upside of the market if it moves higher. The historically strong basis in the live cattle markets today make it difficult to manage risk in the current environment. Still, having a marketing plan and a way to protect price is necessary every year – particularly in a year of increasing supplies for all proteins and a bias towards lower cattle markets moving forward.

Many producers are hesitant to change marketing methods. Meaning most producers do what they did last year, or for the past 20 years. Nevertheless, if you sold calves in October 2016, the market didn’t treat you very well. Adapting to change may very well be necessary. The CattleFax U.S. average price for 550-pound steers last October was $127/cwt, similar to where the CME

Feeder Cattle Index price is today. Granted, producers who were able to retain ownership of calves longer did so, and were rewarded. Yet, not everyone is set up to continue owning calves and incurring more risk.

Just playing the odds, as the accompanying chart indicates, forward contracting calves during the summer months for fall delivery pays dividends. In 2013 and 2014, this was not the case, but those were bull market years. A broader historical perspective shows forward contracted or video sale calf values should trade above the spot market price in the fall months in 8 out of 10 years.

Again, there is more than one way to skin cat and other forms of managing risk with hedging or using options exist. But, figuring your basis in the current environment will be extremely difficult, and that is a risk. Live cattle basis is at levels never before seen. When markets go into uncharted territory, predicting price is virtually impossible.

Bottom Line: After the declines experienced the past couple of years, it is understood that managing risk is a necessary component for being successful in the cattle business. There needs to be revenue insurance of some type of a floor price under the cattle. The USDA Livestock Risk Protection (LRP) program is another viable option to accomplish this goal. Of course insurance of any kind, whether LRP, options, hedges, etc. costs money. But, the potential amount of money that can be preserved cannot be overstated. If you have questions about different ways to manage risk on your cattle, give your CattleFax analyst a call to go through various scenarios. Troy Applehans

Feeder Cattle and Calves: Representative Direct Sales

Feeder Cattle Outlook

WHEN THE MARGIN FOR ERROR IS SMALL, PRECISION MATTERS.

Stopping the spread of disease

starts with directly targeting its

causes. Bovilis® Coronavirus is specially

formulated to help reduce enteric

disease caused by Bovine Coronavirus,

and delivers spot-on protection

as part of a comprehensive

vaccination protocol.

Proven to aid in the reduction of enteric disease caused by Bovine Coronavirus

Safe for use in colostrum-fed calves

Approved for intranasal application in one or both nostrils

Safe for use in calves as young as 1 day of age

merck-animal-health-usa.com • 800-521-5767Copyright ©2016 Intervet, Inc., doing business as Merck Animal Health, a subsidiary of Merck & Co., Inc. All rights reserved.8/16 55299-2

10-Mar-17 3-Mar-17 11-Mar-16CattleFax DataPlacements 148,746 143,457 156,570Shipments 118,800 113,217 117,160Avg In-Weights 739 726 738USDA Sltr Wgts 1,363 1,367 1,379USDA Str Carc Wgt* 878 881 887Days on Feed 149 151 149Carryover Pct 34 36 42Weekly Supply 394,900 424,300 432,600Percent Grade Choice & Higher 79.44 78.95 76.47Prime Grade Pct 6.18 6.17 5.51Choice Grade Pct 73.26 72.78 70.96Select Grade Pct 15.70 15.98 17.98Live Prices ($/cwt)Slaughter Steers 125.34 125.20 137.71Steer Calf (450#) 171.42 171.61 212.09Steer Calf (550#) 157.76 157.51 196.25Yearling Steer (650#) 141.69 141.93 175.42Yearling Steer (750#) 128.87 128.73 159.24Yearling Steer (850#) 121.62 121.98 148.30Utility and Commercial Cows 65.18 63.41 77.56Canner and Cutter Cows 58.33 57.66 72.24Lean Hogs 70.08 70.25 64.71Omaha Corn ($/bu) 3.23 3.40 3.5012-City Broiler 93.04 86.56 82.63Dollar Index 101.58 101.82 96.07Meat Prices ($/cwt)Certified Angus Beef Cutout (UB) 214.17 210.59 235.52Choice Cutout 215.56 208.35 225.24Select Cutout 209.00 203.72 213.85Choice/Select Price Spread 6.56 4.63 11.39Cow Cutout 167.95 165.90 173.66Hide and Offal 11.93 11.93 10.65Pork Cutout 81.75 80.16 76.65Slaughter (000 hd) and Meat Production (Mil lbs)Cattle 587.0 581.0 542.0Hogs 2,313.0 2,311.0 2,236.0Total Red Meat Production 975.4 970.4 922.3Beef Production 480.3 475.9 441.8Pork Production 491.1 490.5 476.1Poultry Production N/A 823.5 808.5 CME AVG 6 STATE FED KS-TX-OK FDR PRICE STR PRICE** FED STR**Thu 03/09 N/A 125.43 124.84Wed 03/08 127.00 125.32 124.82Tue 03/07 126.95 125.15 124.92Mon 03/06 126.97 125.06 124.92Fri 03/03 126.86 124.99 124.85* USDA steer carcass weights are actual from two weeks ago.** 5-Day weighted average fed steer price (CO,IA,KS,NE,TX,OK), (KS,TX,OK)

Summary of Activity This Week Last Week Year Ago

CattleFax 9110 East Nichols Avenue, Ste. 301 Englewood, Colorado 801121-800-825-7525

While CattleFax believes that the data/informa-tion provided is accurate and complete, no warranty is made with respect thereto. CattleFax shall not be liable for decisions or actions taken by the use based on the data/information.

Page 4

F.I. Slaughter Mix (000 head) ------ Week Ending ------ ------ Year To Date ------ 25-Feb-2017 27-Feb-2016 2017 2016 Pct ChgTotal Sltr 575 541 4630 4422 UP 4.7

Pct No Pct NoSteers 51.5 296 50.5 273 2389 2293 UP 4.2Heifers 27.5 158 27.9 151 1267 1184 UP 7.0Cows 19.1 110 20.0 108 904 882 UP 2.5Bulls 1.7 10 1.5 8 71 62 UP 14.5

Live Cattle Imports, Year-to-Date Totals 25-Feb-17 17-YTD 16-YTD

CanadaFeeders 3,708 13,087 17,751Slaughter 10,702 72,408 93,228 04-Mar-17 17-YTD 16-YTDMexico 28,662 222,593 172,745

head per day in 2017 compared to 93,000 last year. The industry has not seen those slaughter levels since the plant closures earlier in the decade. CattleFax believes these targets are attainable, but what does it cost cattle producers?

Historically, the fed cattle price seasonal trades in plus or minus 11 percent range around the annual average. That range has averaged plus or minus 17 percent over the last three years with the increased volatility coming from larger shifts in bargaining position across industry segments. CattleFax expects an annual average fed cattle price around $110/cwt. in 2017. Recent highs are already 14 percent above that average. Revisiting last year’s summer low at $98 suggests a 10 percent price decline from average. A decline of 14 percent or more from the annual average puts prices in the low-to-mid $90s.

Leverage: The Biggest Market Risk continued from page 1

Bottom Line: As retail beef prices trend lower, leverage shifts among the various segments will continue to have considerable influence on price and margin volatility across the industry. A decline in the fed cattle-to-cutout price ratio similar to 2015 takes the ratio back to 50 percent. It suggests a $100/cwt. fed cattle market low with if the cutout is in the mid $170s. If the ratio breaks more similar to 2016 (near 48 percent), fed cattle market risk is in the low-to-mid $90s. Leverage remains critical to market prices through the early parts of this expansion phase. Lance Zimmerman