Jul 22, 2014
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Market Highlights: Cattle on Feed Down

June 24, 2014
BT Rotator Feedlot Steer
  

The number of cattle entering feedlots is down 1.6% compared to last year at 10.59 million head on June 1.
By: Andrew P. Griffith, University of Tennessee

FED CATTLE: Fed cattle traded $2 higher in the South compared to last week and unevenly steady in the North. Prices on a live basis were mainly $148 to $150 while dressed trade was primarily $236 to $238. The 5-area weighted average prices thru Thursday were $149.04 live, down $0.33 from last week and $236.94 dressed, up $0.56 from a week ago. A year ago prices were $121.37 live and $193.57 dressed. Cattle in the South have been trading at a discount compared to the North for a number of weeks, but they did some catching up this week. Fed cattle prices were unevenly steady with a hint of strength behind them which continues to support the auspice that "summer lows" have already been set. Thus, predicting where the market goes from here becomes a more daunting task, and the majority of it depends on the consumers’ willingness-to-pay for beef. The continued strength in the fed cattle market will continue to provide support for feeder cattle prices, but higher feeder cattle prices will continue to eat into feedlot margins which could easily turn very thin in coming months.

BEEF CUTOUT: At midday Friday, the Choice cutout was $240.81 up $0.35 from Thursday and up $9.28 from last Friday. The Select cutout was $233.28 up $0.19 from Thursday and up $9.39 from last Friday. The Choice Select spread was $7.53 compared to $7.64 a week ago. Packers were able push beef cutout prices higher this week which allowed them to bid a little higher for fed cattle. However, the increase in beef prices this week is contrary to the seasonal tendency. Beef prices are generally trending down this late in June with some limited support from beef purchases in anticipation of Independence Day. However, the Choice and Select cutouts found a burst of energy after stagnating the past couple of months. The Choice cutout is attempting to bump its head against record cutout prices experienced in March. The current Choice cutout price is only about $1.50 from the record, but the market may provide resistance with only one more grilling holiday in the near future. Again, the direction of cutout prices and their ability to maintain the status quo or increase will be dependent on consumers. Based on the monthly Food Demand Survey administered by Oklahoma State University, consumers expressed an increased willingness-to-pay for both steak and hamburger in June compared to May which bodes well for the beef complex.

Boxed Beef

TENNESSEE AUCTIONS:
On Tennessee auctions this week compared to a week ago steers and bulls were $5 to $7 higher. Heifers were $2 to $4 higher. Slaughter cows and bulls were steady to $1 higher. Average receipts per sale were 618 head on 12 sales compared to 745 head on 11 sales last week and 530 head on 10 sales last year.

Tennessee

OUTLOOK: Volatility in feeder cattle futures prices was evident this week with a number of contracts falling the limit on Wednesday just to rebound on Thursday and close just shy of Tuesday afternoon’s closing price. Over the past three months, feeder cattle futures prices have increased between $27 and $31 per hundredweight which is a 15.4 to 17.5 percent increase in prices.

Reviewing futures price charts over the past six months would indicate that feeder cattle prices will continue to escalate, but the recent volatility driven by the selling off of contracts one day and then buying back contracts the next by purveyors might be indicative that the market is about ready to stall. Prices could continue to escalate, but it would appear there is little room for prices to continue the upward trend that began in December of 2013 before skyrocketing in mid to late April.

slaughterThe fact remains that demand continues to be strong for feeder cattle and calves, and there is little indication of softening demand. Thus, prices for most classes of cattle are likely to remain fairly flat with small price spikes and troughs. The current market sets up a strong profit opportunity for cow-calf producers. However, margin operators will likely be staring into the teeth of the lion as margins will be similar to when prices were 60 to 70 percent lower, but the financial risk undertaken with each purchase is significantly higher. The use of risk management tools such as futures, options, or livestock risk protection insurance is still warranted at this time, because one food safety scare, animal disease report, or other industry factor could send the market spiraling.

TrendsThe June cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of June 1, 2014 totaled 10.59 million head down 1.6% compared to a year ago, which is consistent with pre-report estimates of down 1.5%. May placements in feedlots totaled 1.91 million head, down 7.0% from a year ago with the pre-report estimate average expecting placements down 7.4%. May marketing’s totaled 1.87 million head down 4.3% from 2013 which is spot on with pre-report estimates for marketings. Placements on feed by weight: under 600 pounds up 10.1%; 600 to 699 pounds down 6.5%, and 700 pounds and over down 12.1%.

TECHNICALLY SPEAKING: Based on Thursday’s closing prices, June closed at $148.00. Support is at $146.82 then $144.85. Resistance is at $148.80, then $150.78. The RSI is 73.67. August closed at $147.48. Support is at $145.89, then $143.24. Resistance is at $148.54, then $151.19. The RSI is 71.98. October closed at $149.38. Support is at $149.00, then $147.50. Resistance is at $150.03, then $150.60. The RSI is 67.57. August feeders closed at $207.55. Support is at $205.97, then $203.44. Resistance is at $208.49, then $211.02. The RSI is 69.81. November feeders closed at $208.45. Support is at $206.48, then $205.48. Resistance is at $208.48 then $209.20. The RSI is 72.17. January feeders closed at $203.75. Support is at $203.50, then $200.75. Resistance is at $204.63 then $206.00. The RSI is 73.07. Friday’s closing prices were as follows: Live/fed cattle – June $147.55 -0.45; August $146.33 -1.15; October $149.15 -0.23; Feeder cattle - August $206.88 -0.68; October $208.18 -0.40; November $207.70 -0.75; January $202.75 -1.00; July corn closed at $4.53 up $0.03 from Thursday.

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