Market Highlights: Beef Price War

May 12, 2015 10:07 AM
 
Market Highlights: Beef Price War

The price war between feedlot operators and packers looks to continue​.
By: Andrew P. Griffith, University of Tennessee

FED CATTLE: Fed cattle trade was not well established at press to determine a trend. Prices on a live basis were mainly $159 to $161 while dressed prices were between $255 and $256. The 5-area weighted average prices thru Thursday were $159.77 live, up $0.60 from last week and $255.04 dressed, up $1.14 from a week ago. A year ago prices were $150.02 live and $236.05 dressed.

Leverage started shifting from the feedlot to the packer several weeks ago. However, feedlot operators are finding a way to hold on to steady money and occasionally finding a way to achieve higher values.

The ability to hang on to steady prices simply means that feedlots are not trudging into the red nearly as quickly as losses on a cash-to-cash basis have been adding up as of late. On the other hand, packers are concerned with the ability to move wholesale beef and continue to attract adequate demand.

The price war between feedlot operators and packers will continue, but leverage is expected to continue shifting to the packer in the near term as slaughter numbers are expected to continue escalating.

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BEEF CUTOUT: 
At midday Friday, the Choice cutout was $258.20 up $0.62 from Thursday and up $3.70 from last Friday. The Select cutout was $246.84 up $1.00 from Thursday and up $4.46 from last Friday. The Choice Select spread was $11.35 compared to $12.11 a week ago.

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Middle meats continue to be the driver of beef cutout prices though they have found resistance the past couple of weeks. The wholesale ribeye price has increased about 22 percent since the middle of February and is more than 20 percent higher than the same week one year ago. Similarly, loin prices have increased more than 36 percent since the middle of February and are more than 28 percent higher than the same week one year ago.

Consumers speak with the almighty dollar, and it appears they have no intentions of removing beef from the dinner table even when pork and poultry prices are relatively low. Additionally, it appears many consumers are still willing to pay for higher quality cuts of beef and have not yet and may not be willing to trade down to ground product.

Only time will tell if beef demand falls flat or continues to surge the next several months as May tends to be one of the strongest beef demand months. Consumers will continue to face high retail beef prices the next couple of years and thus continue using the dollar to vote for their favorite meat.

TENNESSEE AUCTIONS: On Tennessee auctions this week compared to a week ago steers and bulls were unevenly steady. Heifers were steady to $2 higher. Slaughter cows were steady to $1 lower while bulls were steady to $1 higher. Average receipts per sale were 720 head on 9 sales compared to 700 head on 10 sales last week and 717 head on 12 sales last year.

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OUTLOOK: This portion of the weekly comments is usually focused on the feeder cattle market and the expectation of what feeder cattle prices will do over the next several weeks and months given different weight classes. Additionally, most examples use steer prices because it is almost guaranteed that a steer is going to a feedlot.

Alternatively, there tends to be less focus on the heifer market, but hopefully some aspects of the heifer market will be addressed this week. Based on seasonality charts for heifers sold in Tennessee, prices for heifers weighing between 400 and 600 pounds generally peak in May before backsliding through the summer and fall.

Similar to steers, heavier feeder heifer prices generally peak in late July through August which has them coming off feed during the holiday season when consumers are after middle meats for holiday gatherings.

With that being said, producers with lightweight heifers might need to be evaluating selling those heifers in the near future versus adding weight through the next few months and marketing yearling heifers. Many fall calving herds have already weaned calves or will soon wean calves.

Thus, producers should be taking steps to determine if selling today or in two or three months will return a greater value to the operation. Another factor that is impacting the heifer market is the demand for replacement heifers.

There are still several producers west of the Mississippi River with intentions of restocking pastures with cows. Some of these producers are searching for bred heifers while others are content with open heifers.

Regardless, replacement heifers will be in strong demand throughout the remainder of the year as long as pasture conditions remain in relatively good condition. Thus, another marketing option comes in the form of replacement quality heifers.

There are a number of cow-calf and stocker producers in the Southeastern United States that could capitalize on the heifer market this year, but it may require additional effort on the marketing side of the cattle business. Producers should try to evaluate all marketing alternatives in order to determine which one returns the highest value.

TECHNICALLY SPEAKING: Based on Thursday’s closing prices, June live cattle closed at $149.38. Support is at $148.73, then $147.11. Resistance is at $150.36 then $151.98. The RSI is 48.73. August live cattle closed at $148.27. Support is at $147.60, then $146.07. Resistance is at $149.13, then $150.65. The RSI is 51.22. October live cattle closed at $150.18. Support is at $150.00, then $149.60. Resistance is at $150.50, then $151.40. The RSI is 51.80. May feeders closed at $214.90. Support is at $213.97, then $212.27. Resistance is at $215.67 then $217.37. The RSI is 56.38. August feeders closed at $216.18. Support is at $215.76, then $213.88. Resistance is at $217.63 then $219.51. The RSI is 56.54. September feeders closed at $215.90. Support is at $214.70, then $213.93. Resistance is at $216.48 then $216.83. The RSI is 56.25. Friday’s closing prices were as follows: Live/fed cattle –June $151.50 2.13; August $149.83 1.55; October $151.20 1.03; Feeder cattle - May $215.88 0.98; August $217.63 0.83; September $216.73 0.83. October $216.20 0.95; May corn closed at $3.59 up $0.01 from Thursday.

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