By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle trade was not well established at press, but seemed to be firming compared to last week. Some dressed trade was as much as $5 to $6 higher and trading near $210. The 5-area weighted average prices thru Thursday were $130.00 live, down $1.70 from last week and $209.63 dressed, up $3.67 from a week ago. A year ago prices were $160.03 live and $256.36 dressed.
Feedlot margins continue to be deep in the red on recently marketed animals. In many cases, the cash-to-cash margins with no risk management exceed $300 per head losses. Though feed prices remain low, it is nearly impossible to overcome the tremendous decline in cattle prices feedlot operators witnessed from when these cattle were purchased to when they were marketed.
On the positive side, feedlot margins are expected to improve and come back into a more normal range. There is a strong possibility that many of the animals being placed in the feedlot today can return a positive margin. There remains a lot of risk in the market, but the fact that breakevens have fallen below $130 is a positive sign.
BEEF CUTOUT: At midday Friday, the Choice cutout was $212.26 down $1.13 from Thursday and down $4.51 from last Friday. The Select cutout was $208.54 down $0.73 from Thursday and down $4.73 from last Friday. The Choice Select spread was $3.72 compared to $3.40 a week ago.
The Choice and Select cutout prices are about $27 lower than the same week one year ago, but about on par with the same week in 2014. Comparing this week’s prices to the same week in 2013, the market reveals that the Choice cutout is $30 higher this week than three years ago while the Select cutout price is $28 higher. This is meant to put the beef price decline in perspective.
Beef prices remain strong relative to recent history. The market is not falling off and disappearing, but rather the market is telling the industry that beef continues to be a highly desirable meat protein. As beef supplies increase over the next several years, beef cutout prices will continue to come under pressure and that is to be expected since supplies are expected to increase. However, demand calculations the past couple of years have shown how strong beef demand really is. There is always a possibility of pricing consumers out of certain markets, but it would seem analysts sometimes price more consumers out of the market than prices do.
OUTLOOK: It appears grass cattle demand is slowly picking up as lightweight calf prices found a little traction this week. This price strengthening is expected to continue for cattle to go on grass especially as the market moves into the month of March.
Stocker producers will be trying to secure calves to grow for the next 120 to 150 days which may offer cow-calf producers a good opportunity to market calves at a fairly strong price. Lightweight calf prices are seasonally strongest in March and tend to be about 6 percent above the annual average price. However, just because prices are highest for lightweight calves in March does not mean it is the most profitable decision for a producer to market calves in March.
There is a reason stocker producers are purchasing those calves and carrying them to heavier weights and that reason is for a profit.
There are several reasons cow-calf producers market calves at a lightweight and it may be because they do not have enough grass for the cows and calves, they do not have a good place to wean and grow the calves to heavier weights, or they may just not want to take the risk. However, producers should always evaluate the value of gain or the value of putting weight on an animal relative to the cost of gain which is how much it cost to put weight on the animal.
If the value of gain is greater than the cost of gain then continuing to grow that animal is profitable. Stocker producers are encouraged to watch the market closely as prices are expected to increase which increases input costs and can cut down on the margin in a hurry. Stocker producers may still have an opportunity to purchase calves the next week or two without paying top dollar for calves, but if calves are not purchased soon then it may be best to wait until the middle of April or later to secure inventory.
Cattle prices are not expected to experience extreme price movements similar to the past two years and producers should make note of this because stocker margins are expected to gravitate back to somewhat normal margins.
The February cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of February 1, 2016 totaled 10.71 million head, even with a year ago, with the pre-report estimate average expecting a decrease of 0.2%. January placements in feedlots totaled 1.78 million head, down 0.6% from a year ago with the pre-report estimate average expecting placements down 0.7%. January marketing’s totaled 1.59 million head down 2.2% from 2015 which is consistent with the pre-report estimate. Placements on feed by weight: under 600 pounds down 17.1%, 600 to 699 pounds up 7.4%, and 700 pounds and over up 3.4%.
ASK ANDREW, TN THINK TANK: A producer in Hardeman County asked me this week what new registered breeders should do to market their registered bulls and bred heifers. I am no expert in the field of marketing registered animals, but as with any business it is about developing a reputation. Registered breeders marketing seed stock should first determine what lines of certain breeds are in the greatest demand. Those breeders should also begin marketing some animals in the local or regional breed association sales. Additionally, placing bulls in the University of Tennessee Bull Test program can help develop a reputation as well as provide an outlet to sell the animals participating.
Please send questions and comments to email@example.com 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 –February $135.75 0.60; April $134.40 0.03; June $123.50 0.05; Feeder cattle - March $156.00 -0.48; April $154.75 -0.75; May $152.98 -1.03; August $152.60 -0.88; March corn closed at $3.66 down $0.00 from Thursday.