Market prices for fed cattle in 2015 are headed in exactly the opposite direction of where they were headed the fall of 2014.
By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle traded $5 lower on a live basis compared to a week ago. Live prices were mainly $135 to $136 while dressed trade occurred between $210 and $213. The 5-area weighted average prices thru Thursday were $135.07 live, down $4.91 from last week and $213.25 dressed, down $6.84 from a week ago. A year ago prices were $153.75 live and $245.23 dressed.
Market prices for fed cattle in 2015 are headed in exactly the opposite direction of where they were headed the fall of 2014. Many folks are asking how much lower prices can go while one year ago the same folks were asking how much higher fed cattle prices could go. There is a minimum price of zero, but that does not seem realistic.
The bottom for this year may not yet be found, but the more pressing questions are how fast prices will recover from the summer lows and how high will fed cattle prices be in late fall and early winter. The futures market does not currently have much of a rebound occurring this fall and winter, but fed cattle prices will bounce back when the backlog of cattle are moved through the system.
BEEF CUTOUT: At midday Friday, the Choice cutout was $227.19 down $3.31 from Thursday and down $10.79 from last Friday. The Select cutout was $219.73 down $1.97 from Thursday and down $7.40 from last Friday. The Choice Select spread was $7.46 compared to $10.85 a week ago.
Beef prices tumbled again this week, and it appears consumers are not willing to continue paying for high priced beef products in today’s market. The beef market has seen its fair share of turbulence and probably will continue to do so over the next several months if packers continue manipulating the market by managing kills to support price.
The management of slaughter and thus the continued delay of cattle being marketed will continue to result in heavier cattle being slaughtered and a backup in cattle movement. Since the spring price peak, the beef cutout value softened during the heat of summer before rejuvenating for a short time period, and now it finds itself floundering again.
Cutout prices are not finding much support from any of the primal cuts at this time. The rib, short plate, and flank primal prices have declined between 19 and 24 percent since April. Similarly, the loin and brisket are about 14 and 12 percent lower respectively over the same time period. The primal cuts holding value are the chuck and round which are down 5 to 6 percent.
OUTLOOK: How could consecutive years be so different in the cattle and beef market? Many cattle producers are singing sad songs right now due to a steady price decline for calves, feeder cattle and fed cattle. It is doubtful that anything happening in the market will bring solace to cow-calf producers, stocker producers, or feedlot managers as the market price of cattle continues to descend. In reality, producers had to expect some type of price correction, but the degree of that price correction was unknown and may still be unknown.
Then the question arises of how bad is this price decline. Thus far, the answer is that the price decline is really not that large compared to the run cattle prices had in 2014.
For instance, based on Tennessee weekly auction data, 500 to 600 pound steers traded at $171 per hundredweight in January of 2014 and peaked in December at $257 per hundredweight which is a 50 percent increase in price. Those same 500 to 600 pound steer prices set a new Tennessee record price just shy of $263 in March of 2015 and are trading near $207 this week which is a 21 percent decline from the spring price peak.
Similarly, 700 to 800 pound steers ran from $150 per hundredweight to $222 in 2014 which is a 48 percent price increase. In the most recent week, 700 to 800 pound steers marketed through Tennessee auction markets averaged $182 per hundredweight which is 18 percent lower than the peak price experienced in December 2014. The price decline may upset many in the cattle business, but relatively speaking prices are still extremely strong.
Cow-calf producers should continue experiencing strong profits at current price levels. The situation for margin operators is a little different, but the news is not all bad. Stocker producers and feedlot managers realized record returns per head in 2014 as prices continued to climb because they were able to sell cattle on a stronger market than what they purchased the cattle.
The opposite is true in the current market. Margin operators are marketing cattle on a weaker market than what they purchased the cattle so the hope is that those producers squirreled away some of 2014’s record profits. One upside for margin operators is that the overall investment in an animal has declined significantly in recent weeks.
The September cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of September 1, 2015 totaled 9.99 million head, 2.7% higher than a year ago, with the pre-report estimate average expecting an increase of 3.7%. August placements in feedlots totaled 1.63 million head, down 5.4% from a year ago with the pre-report estimate average expecting placements up 0.3%. August marketing’s totaled 1.59 million head down 6.1% from 2014 while the pre-report estimate expectation was down 6.2%. Placements on feed by weight: under 600 pounds down 3.7%, 600 to 699 pounds down 24.6%, 700 to 799 pounds down 7.6 %, and 800 pounds and over up 3.9%.
ASK ANDREW, TN THINK TANK: Questions continue to roll in concerning selling calves at weaning or weaning them and backgrounding them this fall. The answer really depends on a producers risk preference and the resources available. If a producer can just not bear the thought of prices falling further then selling may be the correct thing to do but this should not be the primary determinant. Producers should evaluate the cost of gain versus the value of gain as well as considering marketing options to make the decision. If the expected value of gain is greater than the expected cost of gain and a marketing venue is available that will help capture that value then maintaining those animals may be the correct decision.
Please send questions and comments to firstname.lastname@example.org or send a letter to Andrew P. Griffith, University of Tennessee, 314B Morgan Hall, 2621 Morgan Circle, Knoxville, TN 37996.
FRIDAY’S FUTURES MARKET CLOSING PRICES: Friday’s closing prices were as follows: Live/fed cattle –October $135.93 -0.93; December $138.38 -0.95; February $139.15 -0.90; Feeder cattle - September $192.93 -0.28; October $185.30 -2.50; November $182.95 -3.08; January $177.40 -3.40; September corn closed at $3.77 down $0.03 from Thursday.