Prices are expected to moderate on calves this fall which means a lower upfront investment when purchasing calves this year relative to one year ago.
By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle traded $3 to $4 lower on a live basis compared to a week ago. Live prices were $146 to $149 while dressed trade occurred between $228 and $233. The 5-area weighted average prices thru Thursday were $147.27 live, down $5.46 from last week and $232.55 dressed, down $6.74 from a week ago. A year ago prices were $152.82 live and $241.85 dressed.
The fed cattle market hit a barrier this week as it gave up almost all of its gains from what was previously thought as the summer low the last week of July. There is still good indication that the summer lows are in for fed cattle.
The beef cutout has remained fairly steady which should provide support to the live cattle market. However, the shake up in the fed market seems to be due to abundant supplies of finished cattle in the North while supplies are much tighter in Texas and Kansas.
Cattle in the South could easily receive a premium compared to cattle in the North the next week or so due to supply issues. However, packers are slow to pull the trigger on higher prices because this also helps set formula prices for future weeks.
BEEF CUTOUT: At midday Friday, the Choice cutout was $244.77 down $1.69 from Thursday and up $0.16 from last Friday. The Select cutout was $234.82 down $0.76 from Thursday and up $0.04 from last Friday. The Choice Select spread was $9.95 compared to $9.83 a week ago.
The beef cutout prices have slowed tremendously this week which is to be expected. Retailers and food service providers are finishing their last Labor Day purchases, and mop up duty is all that will be left for the Labor Day holiday following next week. Packers have found themselves back in the black with higher beef cutout prices and somewhat lower fed cattle prices.
The stronger margins incentivize packers to increase slaughter and thus beef production, but many packers will likely be cautious of increasing chain speeds due to the fall off in beef consumption immediately following the last holiday of summer. Beef movement tends to be slack in late summer and early fall just prior to picking back up for winter holiday festivities. Retail beef prices remain elevated even though cutout prices have come off record levels. However, elevated retail prices are to be expected as retailers continue trying to recoup lost margins when boxed beef prices began their rise. Retail prices will gradually decline just as they gradually increased.
OUTLOOK: Fall cattle marketings began picking up the past two weeks. September and October have traditionally been the primary months in which spring born calves are marketed in Tennessee with November being a strong month to finish up fall marketing of spring born calves. This year is not expected to be any different.
Cow-calf producers should have already evaluated their marketing alternatives, but if they have not done so then this is the time to do it. Many producers set wheels under freshly weaned calves when grass begins to play out as well as marketing older and less productive cows. This is one method of marketing calves and will be available for many years to come. However, some producers may be considering adding value to calves by weaning, vaccinating and adding weight over the next several months.
If preconditioning and backgrounding the calf crop is an option then producers should identify sales specifically for weaned and vaccinated cattle. Many of the marketing agencies that operate weekly auctions also host special sales for weaned and vaccinated calves.
For a schedule of Tennessee graded feeder cattle and specials sales, producers can access the following website which is maintained by the Tennessee Department of Agriculture. On the other hand, there are several stocker producers and backgrounding operations that will be looking to secure cattle this fall in order to grow them this winter and early next spring.
One positive note is that prices are expected to moderate on calves this fall which means a lower upfront investment when purchasing calves this year relative to one year ago. This week was the first indication of calf prices moderating with steers down $1 to $3 and heifers down $3 to $4 per hundredweight. Market prices this fall for calves are expected to continue moderating, but the initial capital outlay for stocker producers will still be high relative to every year prior to 2014.
The August cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of August 1, 2015 totaled 10.00 million head, 2.6% higher than a year ago, which is spot on with the pre-report estimate average. July placements in feedlots totaled 1.55 million head, down 0.8% from a year ago with the pre-report estimate average expecting placements up 0.9%. July marketing’s totaled 1.73 million head down 3.5% from 2014 while the pre-report estimate expectation was down 3.0%. Placements on feed by weight: under 800 pounds down 10.8% and 800 pounds and over up 8.4%.
ASK ANDREW, TN THINK TANK: A few questions concerning the availability and location of historical cattle prices have been raised the past couple of weeks. There are a couple of locations where historical cattle prices can be found. One location is through the market news search which gives someone the ability to look up several different reports including beef cutout prices, fed cattle prices and Tennessee cattle prices. However, if one is looking for historical Tennessee cattle prices then they can be found in the publication Seasonal Prices for Tennessee Feeder Cattle and Cows. This publication provides average monthly prices for the past 20 years for steers, heifers, and cows marketed in Tennessee.
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 –August $145.00 -1.48; October $143.63 -2.70; December $145.85 -2.63; Feeder cattle - August $211.68 -1.53; September $202.33 -4.50; October $199.48 -4.50; November $197.35 -4.50; September corn closed at $3.65 down $0.06 from Thursday.