Sep 20, 2014
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Market Highlights: Tailing Off

September 2, 2014
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The cattle markets are starting to tail off from their summer highs as spring calves are being weaned.
By: Andrew P. Griffith, University of Tennessee

FED CATTLE: Fed cattle traded $2 higher in the South compared to last week. Prices on a live basis were mainly $154 to $155 while dressed trade occurred between $243 and $245. The 5-area weighted average prices thru Thursday were $154.56 live, up $1.74 from last week and $242.98 dressed, up $1.13 from a week ago. A year ago prices were $123.52 live and $196.01 dressed.

The fed cattle market is about the only market in the cattle complex that was able to push prices higher. Short bought packers were forced to pay up to cover short term slaughter needs as feedlot managers stood their ground on asking prices.

The live cattle market found a way to support prices through the summer which was likely due to limited numbers. However, as marketings become less current and as cattle backup in the yard, feedlot managers will likely have to move cattle at lower prices in future weeks.

It is doubtful a catastrophic price decline looms before the industry but some correction in the market is to be expected after record prices exhilarated the market.

slaughter

BEEF CUTOUT: At midday Friday, the Choice cutout was $245.99 down $0.90 from Thursday and down $4.21 from last Friday. The Select cutout was $234.78 down $0.49 from Thursday and down $5.29 from last Friday. The Choice Select spread was $11.20 compared to $10.12 a week ago.

After prices peaked the last week of July, the beef cutout prices have struggled to maintain record prices through the month of August. The Choice cutout price declined $17.78 since the first day of August while the Select cutout price has declined $23.93 over the same time period.

cutout

Even the last grilling holiday of the summer could not provide enough support for wholesale beef prices to maintain this new found apex. It will be tough for packers to push higher prices the next couple of months and it may be just as difficult to maintain current prices as short term slaughter rates are expected to increase and the fall time period is generally a time of reduced beef demand.

Grinding product continues to be the big seller as cow slaughter has been significantly reduced due to short cattle numbers and many producers’ intentions of growing the herd. Similarly, there has been a reduction in the amount of trim available for grinding since steer and heifer slaughter rates have declined. These factors have supported ground beef prices which tend to be the least expensive beef option.

TENNESSEE AUCTIONS: On Tennessee auctions this week compared to a week ago steers and bulls were $1 to $8 lower. Heifers were $3 to $9 lower. Slaughter cows were steady to $1 higher while bulls were $2 to $3 higher. Average receipts per sale were 642 head on 12 sales compared to 750 head on 12 sales last week and 667 head on 9 sales last year.

Tennessee

OUTLOOK: The feeder cattle market is starting to experience some softening in prices. Seasonally speaking, prices generally tail off heading into the fall especially when producers begin weaning calves and setting wheels underneath them. Producers should not expect prices to increase this fall like they did one year ago.

In 2013, the average price in Tennessee for 500 to 600 pound steers in August, October, November and December exceeded the 2013 spring price peak which is an exception rather than a rule. December prices were the highest at $160 per hundredweight. Similarly, 700 to 800 pound steer prices for 2013 peaked in the November and December time period at $144 per hundredweight. The price strength in 2013 was fueled by cheaper grain prices and greater expected profits in the feedlot sector. Though many producers marketed calves earlier in 2014 than is traditional, a more seasonal tendency is expected this fall because there are still a large number of calves that will run through the auction market arena resulting in some price pressure.

trendsPrices are not expected to fall off to the degree that has been seen in previous years due to the short supply of cattle nationally. Calf and feeder cattle prices increased nearly every month from January to the end of July.

Based on Tennessee weekly auction market averages, the price of 500 to 600 pound steers increased nearly 28 percent over that seven month period while 700 to 800 pound steer prices increased nearly 30 percent. Five hundred to 600 pound steer prices have been known to decline about 7 percent from July to November while 700 to 800 pound steer prices have been known to decline about 8 percent from July and August to December. If such price declines were to occur then that would result in 500 to 600 pound steer prices falling from about $229 to $213 per hundredweight or $88 per head. Similarly, an 8 percent decline in the price of 700 to 800 pound steers would result in a price decline from about $202 to $186 per hundredweight or $120 per head. It is not likely prices will decline to this degree, but it certainly provides enough reason for a producer to consider price risk protection if it only costs $15 to $20 per head.

TECHNICALLY SPEAKING: Based on Thursday’s closing prices, October live cattle closed at $150.10. Support is at $148.16, then $144.93. Resistance is at $151.38, then $154.61. The RSI is 49.41. December live cattle closed at $152.70. Support is at $151.15, then $150.78. Resistance is at $152.75 then $153.25. The RSI is 52.01. February live cattle closed at $153.78. Support is at $151.88, then $151.60. Resistance is at $153.80, then $154.10. The RSI is 53.12. November feeders closed at $212.93. Support is at $210.83, then $210.23. Resistance is at $212.95 then $214.70. The RSI is 50.61. January feeders closed at $207.90. Support is at $206.08, then $205.40. Resistance is at $207.93 then $209.60. The RSI is 50.93. March feeders closed at $207.88. Support is at $207.85, then $206.08. Resistance is at $207.90, then $209.00. The RSI is 52.68. Friday’s closing prices were as follows: Live/fed cattle – October $151.43 +1.33; December $153.95 +1.25; February $154.60 +0.83; Feeder cattle - October $216.73 +1.95; November $215.38 +2.45; January $210.20 +2.30; March $210.03 +2.15; September corn closed at $3.59 down $0.03 from Thursday.

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