Market Highlights: Boxed Beef Market a Subborn Mule

October 28, 2017 12:00 PM
 
The boxed beef market in October has been a lot like riding a stubborn mule. 

FED CATTLE: Fed cattle trade was not well established at press. Asking prices on a live basis were $116 to $118 and $180 to $185 on a dressed basis. Bid prices on a live basis were $111 to $112.

The 5-area weighted average prices thru Thursday were $110.53 live, up $0.71 from last week and $175.00 dressed, up $1.94 from last week. A year ago prices were $103.13 live and $161.77 dressed.

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Cattle feeders continue to hold out for higher finished cattle prices as October live cattle futures have gained $6 to $7 since the beginning of the month. With October soon to expire, cattle feeders are pointing towards the December contract which is trading north of $120 and $5 higher than the October contract.

The higher live cattle trade on the futures market provides cattle feeders with a little ammunition for asking higher prices in the near term or just feeding cattle a few more weeks when prices are expected to escalate.

Higher prices in the deferred contracts provide cattle feeders with leverage they have not had for several months and reason to feed cattle longer. Either packers will start bidding higher or dressed weights can be expected to increase.

BEEF CUTOUT: At midday Friday, the Choice cutout was $203.55 up $1.18 from Thursday and up $3.49 from last Friday. The Select cutout was $192.35 up $0.44 from Thursday and up $1.14 from last Friday. The Choice Select spread was $11.20 compared to $8.85 a week ago.

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The boxed beef market in October has been a lot like riding a stubborn mule.  A person can do a lot of kicking and screaming, but that mule is going to maintain sure footing and go nowhere fast.

Packers may find the stubborn mule hard to deal with as they prefer when the market moves like a thoroughbred at Churchill Downs, but that is usually followed by the donkey that only knows how to back up! Thus, the sure footed mule may be a good thing for the wholesale beef market at this time as packers continue to be profitable.

Demand for beef continues to be strong though it has demonstrated signs of softening. Beef supply has increased and retail beef prices have decreased compared to the previous couple of years. Consumers are buying more beef at lower prices than a couple of years ago but the magnitude of how they change together is needed to determine change in demand.

The international market has been a key to keeping beef demand strong while the recent increase in the value of the dollar could slow beef exports in the coming months.

OUTLOOK: The summer and fall of 2017 have been good to cow-calf and stocker producers from a production and marketing standpoint. From the production standpoint, grass and hay production have been plentiful in most parts of the country and recent rainfalls continue to support forage growth. From a marketing standpoint, calf and feeder cattle prices were strong this summer, and they have remained strong through the end of October. Several freshly weaned cattle have made their way to town in the past four weeks, but several calves remain at home.

This brings to mind the many factors impacting when cow-calf producers take calves to the market. Two of the most prevalent production factors influencing when cattlemen take calves to market are when grazing runs out and when it is dry enough to get the truck and trailer in the field. It may be a safe bet that many calves have not been weaned because forage resources remain plentiful though dwindling. Although there has been plenty of dry weather in recent weeks to move cattle, the forage resource base often trumps the need for a dry day as most producers expect a dry day will show up.

Producers also consider cattle prices when determining when to market the calf crop. Thus far, prices in the fall of 2017 have been beneficial to adding additional weight to calves. As an example, starting October with a 525 pound steer and adding 50 pounds in the month has resulted in a value of gain near $1.74 per pound which has likely resulted in $50 to $70 per head gains after feed costs.

Continuing to hold on to lightweight calves should prove beneficial if those animals will be carried into 2018 and sold as value added calves. Alternatively, if the plan is to sell calves in the next four to five weeks then producers continue to face the risk of calf prices seasonally declining in November. Calf prices could remain steady over the next month, but there is no guarantee. Stocker producers should run breakeven analysis on fall purchased calves. It appears profits of at least $100 per head can still be hedged at this time.

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ASK ANDREW, TN THINK TANK: There was a recent opportunity to share several research projects taking place in the Department of Agricultural and Resource Economics at the University of Tennessee with producers in the state. The presentation of the findings of these projects spurred several questions specific to each research project. However, there was a commonality among all questions concerning the validity of how the research findings translate to real world production and marketing of livestock. The questioning of this validity is welcome, because after all, making a change could result in gains or losses to an individual’s bottom line. The best suggestion that can be made is for producers to take the results of research and try to evaluate how changes could be efficiently made in the operation using the strategies and project how that would impact a producer in a particular situation.

Please send questions and comments to agriff14@utk.edu 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 $115.38 +1.23; December $120.83 +0.13; February $125.75 -0.35; Feeder cattle –November $156.48 -0.70; January $155.95 -0.15; March $153.00 -0.08; April $152.90 -0.10; December corn closed at $3.49 down $0.02 from Thursday.

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