Beef Market Highlights: Keep Chugging

May 20, 2014 07:24 AM
 
BT Rotator Feedlot 9

The beef market continues to chug along at a record pace.
By: Andrew P. Griffith, University of Tennessee

FED CATTLE:
Fed cattle traded $1 lower on a live basis compared to last week. Prices on a live basis were mainly $146 to $147 while dressed trade was mainly $234 to $236. The 5-area weighted average prices thru Thursday were $146.95 live, down $3.07 from last week and $234.06 dressed, down $1.99 from a week ago. A year ago prices were $124.79 live and $199.76 dressed. Feedlot managers have been raking in strong margins the past few months, but they are aware margins will wear fairly thin in the coming months with many margins resulting in red ink. The feeder's leverage over the packer is dissipating quickly and will soon result in the seasonal decline in fed cattle prices. An average seasonal decline in fed cattle prices could result in cattle prices bottoming out this summer in the mid to low $130 area. The tremendously short supply of cattle may provide enough support to keep the summer low from dipping that deep. However, cattle markets have had a tendency to contain significant volatility in recent years and it could easily rear its head here.

Slaughter
BEEF CUTOUT:
At midday Friday, the Choice cutout was $226.72 up $1.51 from Thursday and up $2.83 from last Friday. The Select cutout was $217.00 up $1.53 from Thursday and up $3.83 from last Friday. The Choice Select spread was $9.71 compared to $10.72 a week ago. Packers are breathing a small sigh of relief this week as boxed beef prices advanced modestly and fed cattle prices softened which should improve margins slightly. Packers continue to find themselves between a rock and a hard place given current prices, but they are thankful the grinding wheel has slowed its pace. Beef features at the retail level have been few and far between leading into the unofficial start of summer and the biggest grilling holiday. Retailers are hesitant to feature beef with such lofty prices relative to chicken and pork. Pork, however, has little breathing room, and it appears may have tighter supplies in the near future. The one saving grace is consumers' preference for beef relative to other meat proteins especially during grilling season. One aspect of the beef market not to be overlooked is the Choice Select spread. Generally, Choice beef would be outpacing Select beef heading into the grilling season resulting in a widening of the Choice Select spread. However, the spread has been stagnant for many weeks, and may be a sign of consumers trading down to lower quality beef.

Boxed Beef
TENNESSEE AUCTIONS:
On Tennessee auctions this week compared to a week ago, steer, bull and heifer calves under 500 pounds were steady to $3 lower. Calves over 500 pounds were steady to $2 higher. Slaughter cows and bulls were steady. Average receipts per sale were 653 head on 12 sales compared to 717 head on 12 sales last week and 700 head on 10 sales last year.

OUTLOOK:
Market TrendsCalf prices continue to hang around the historic highs set in recent weeks, but much like the end of the week weather lightweight calf prices cooled. This may be the onset of lightweight grass cattle prices showing their seasonal weakness heading into the summer months. Regardless if it is or if it is not the start of a price decline in lightweight cattle, grass calves not only held their ground but forged their way to higher prices later in the year than is the general tendency. Thus, producers who held calves a little longer than normal this year probably saw profits increase the past couple of months. Alternatively, feeder cattle prices continue to strengthen as has been suspected with the last few cattle on feed reports reiterating the short supply of cattle. There are very few if any market fundamentals conveying information indicating a decline in feeder cattle prices. The feedlot and packing industry are in a severe position of over capacity which has largely resulted in bidding wars to place feeder cattle in the feedlot and fat cattle on the rail. The aforementioned short supply of cattle and overcapacity of feedlot space and packing facilities is the number one reason for price support. Due to the short supply of cattle, a number of feedlots and packing facilities have been forced to close in recent years or if not close then reduce production at certain facilities which results in laying off workers similar to Cargill’s announcement this week of laying off workers at their Dodge City facility. There will be considerable heartburn in the feeding and packing industries the next few years, and it is likely more facilities will shut the doors, close the gates, and send workers home with their final paycheck. The May cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of May 1, 2014 totaled 10.65 million head down 1.0% compared to a year ago, which is consistent with pre-report estimates. April placements in feedlots totaled 1.64 million head, down 4.9% from a year ago while the pre-report estimate average had placements down 3.2%. April marketing’s totaled 1.78 million head down 2.0% from 2013 with pre-report estimates expecting marketings down 2.1%. Placements on feed by weight: under 600 lbs. up 4.1%; over 600 pounds down 7.3%.

TECHNICALLY SPEAKING:
Based on Thursday’s closing prices, June closed at $137.40. Support is at $136.76 then $135.61. Resistance is at $137.91, then $139.06. The RSI is 53.33. August closed at $137.82. Support is at $137.19, then $135.92. Resistance is at $138.47, then $139.74. The RSI is 61.24. October closed at $141.70. Support is at $141.40, then $140.78. Resistance is at $142.50, then $142.73. The RSI is 58.38. May feeders closed at $186.15. Support is at $185.79, then $185.17. Resistance is at $186.42 then $187.04. The RSI is 72.28. August feeders closed at $192.43. Support is at $191.54, then $189.27. Resistance is at $193.82, then $196.09. The RSI is 76.70. November feeders closed at $192.43. Support is at $192.30, then $191.65. Resistance is at $192.75 then $193.35. The RSI is 75.68. Friday’s closing prices were as follows: Live/fed cattle –June $137.90 +0.50; August $138.38 +0.55; October $142.30 +0.60; Feeder cattle -May $187.30 +1.15; August $193.33 +0.90; October $194.38 +1.05; November $193.28 +0.85; July corn closed at $4.82 down $0.02 from Thursday.

Tennessee Beef Markets

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