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Market Highlights: No Price Ceiling Yet

July 29, 2014
BT Crossbred Charolais Replacement Heifer
Beef prices have yet to find a price ceiling this year as new records continued to be broken.  

Beef prices have yet to find a price ceiling this year as new records continued to be broken.

By: Andrew P. Griffith, University of Tennessee

FED CATTLE: Fed cattle traded $10 higher compared to last week in the South. Prices on a live basis were $162 to $165 while dressed trade occurred between $256 and $258. The 5-area weighted average prices thru Thursday were $162.86 live, up $6.84 from last week and $256.33 dressed, up $9.76 from a week ago. A year ago prices were $119.60 live and $192.45 dressed.

Where the 2014 ceiling is for fed cattle is not known. This year’s cash market has had a tendency to push higher then stumble but immediately rush to new highs. The action in the cash market has caused confusion for many traders in the futures market which has contributed to futures market volatility.

Prices this week are another example of the surging cash fed cattle market as historical record prices were once again set. How long these prices sit at the top of the record books is a mystery to most analysts because the market has outdone what many perceived as possible. Strong prices generally have the ability to pull cattle forward, but it appears feedlot managers are more interested in adding additional weight before marketing.

BEEF CUTOUT: At midday Friday, the Choice cutout was $257.30 up $1.74 from Thursday and up $8.98 from last Friday. The Select cutout was $254.64 up $1.80 from Thursday and up $12.37 from last Friday. The Choice Select spread was $2.66 compared to $6.05 a week ago.

Slaughter

The beef market is not bucking the cattle complex trend. Wholesale Choice beef prices have exceeded year ago prices every week thus far in 2014, and it is not likely they will fall below 2013 prices the rest of the year. The smallest weekly price differential comparing 2014 to a year ago for Choice beef was 3.4 percent the first week of January. For the year, Choice beef prices have averaged 19 percent higher than a year ago, and this week’s price is more than 37 percent higher than the same week a year ago.

Consumers have continued to pay higher prices at retail, and with wholesale prices continuing to escalate, it appears they will face even higher retail beef prices in the near future. At some point, higher prices will dig into the consumer’s piggy bank and alter purchasing patterns, but how it will alter purchases is still unknown. High beef prices have already dug into many piggy banks and caused shifts in purchasing. However, high prices have not appeared to hurt beef demand yet. It is important to remember, "High prices cure high prices."

Box Beef

TENNESSEE AUCTIONS: On Tennessee auctions this week compared to a week ago steers and bulls under 450 pounds were $9 to $14 higher while those over 450 pounds were $3 to $8 higher. Heifers were $4 to $9 higher. Slaughter cows were $1 to $3 lower while bulls were steady to $2 higher. Average receipts per sale were 743 head on 12 sales compared to 782 head on 11 sales last week and 700 head on 9 sales last year.

Tennessee

OUTLOOK: Calf and feeder cattle prices bounced back this week after major price declines last week. Most weight classes made up the ground this week that was lost last week. The volatility the futures market has been experiencing is spilling into the cash market, and this could be worrisome to cattle traders. The volatility in the cash market could wreak havoc on margin operators such as stocker producers and backgrounders if no risk management plan is in place.

TrendsMost stocker producers have been successful in securing strong margins the past six to nine months, but the size of the margin can fluctuate significantly when there is high volatility in the cash market and cattle are not hedged. Comparing last week to this week is a prime example. The average price on weekly auctions in Tennessee for a 750 pound steer was $11 per hundredweight higher this week than last week which is $82.50 more per head this week than last week. The variability of load lot prices for 800 pound steers was not as great across the two weeks, but it still resulted in cattle bringing about $40 to $45 more per head this week than last week. That would mean a load of 60 head marketed last week brought $2,400 to $2,700 less than the same load marketed this week. Margins have been strong and missing out on $40 per head may not seem like a big deal when the margin is $200 or $300, but margins will thin again and buying back cattle also has to be a consideration.

The July cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of July 1, 2014 totaled 10.13 million head down 2.4% compared to a year ago, which is on the low end of pre-report estimates with an average of down 1.8%. June placements in feedlots totaled 1.46 million head, down 6.2% from a year ago with the pre-report estimate average expecting placements down 4.4%. June marketing’s totaled 1.85 million head down 1.8% from 2013 which is spot on with pre-report estimates for marketings. Placements on feed by weight: under 600 pounds up 27.0%; 600 to 699 pounds up 8.4%, and 700 pounds and over down 19.8%.

TECHNICALLY SPEAKING: Based on Thursday’s closing prices, August live cattle closed at $156.55. Support is at $155.05, then $151.75. Resistance is at $158.35, then $161.65. The RSI is 67.81. October live cattle closed at $158.05. Support is at $156.37, then $152.97. Resistance is at $159.77, then $163.17. The RSI is 67.42. December live cattle closed at $157.78. Support is at $155.80, then $155.35. Resistance is at $158.15 then $159.00. The RSI is 68.19. August feeders closed at $217.32. Support is at $215.13, then $210.96. Resistance is at $219.31, then $223.48. The RSI is 66.74. November feeders closed at $217.03. Support is at $215.00, then $213.35. Resistance is at $218.00 then $219.10. The RSI is 64.78. January feeders closed at $211.28. Support is at $209.50, then $207.70. Resistance is at $211.50 then $213.00. The RSI is 63.51. Friday’s closing prices were as follows: Live/fed cattle –August $159.10 +2.55; October $159.80 +1.75; December $158.78 +1.00; Feeder cattle - August $218.25 +0.93; October $218.85 +1.23; November $218.28 +1.25; January $212.20 +0.93; September corn closed at $3.63 up $0.02 from Thursday.

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