By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle trade was $3 higher than a week ago on a dressed basis. Live prices ranged from $140 to $141 while dressed trade was mainly $223 to $225. The 5-area weighted average prices thru Thursday were $140.52 live, up $4.52 from last week and $224.37 dressed, up $6.28 from a week ago. A year ago prices were $161.50 live and $255.28 dressed.
Cattle feeders have watched their losses drop significantly the past month and half, but what promise the future held appears to be short lived. Cattle feeding losses will likely turn into profits over the next few weeks if live cattle prices maintain the status quo or continue to increase.
Alternatively, looking into the third and fourth quarters of 2016 does not look so promising. The April live cattle contract is making a strong statement, but late summer and fall futures contract prices are trading at a 12 to 13 percent discount to April. With the increase in feeder cattle prices and the less than lively deferred live cattle contracts, hedging a profit is nearly impossible. Is the market setting itself up for failure like the fall of 2015 or will deferred contracts converge to the cash price?
BEEF CUTOUT: At midday Friday, the Choice cutout was $232.29 down $2.35 from Thursday and up $8.17 from last Friday. The Select cutout was $223.31 up $0.34 from Thursday and up $8.06 from last Friday. The Choice Select spread was $8.98 compared to $8.87 a week ago.
The increase in wholesale beef prices has to influence retail beef prices. As the wholesale price continues to increase so will retail prices. Based on the weekly national retail report for retail beef prices, many beef items experienced price increases relative to one week ago while the few cuts that declined in price experienced relatively small price declines. Some cuts of meat even have higher prices than those experienced the same week one year ago.
This again begs to question if the market is setting itself up for failure. Packers will continue to push for higher prices in order to capture as much value as possible while the retail sector will try to manage their margins. It does appear though that the retail sector has begun to pass recent increases in the wholesale price of beef along to the consumer. The consumer always has the final say in the market, and it is not clear at this time what conclusion the consumer has drawn. The consumer will either show weariness from high beef prices or demonstrate this is an early start to the grilling season.
OUTLOOK: The calf market continued to strengthen this week as the demand for lightweight calves intensified. Not only has grass begun to green but temperatures this week were warm enough to spur forage growth. The warm temperatures and dry conditions have provided producers the opportunity to spray herbicide, spread fertilizer, and market or purchase calves. The rather ideal conditions will likely result in the seasonal prices of lightweight calves peaking in March with a slow decline through April and May. It does not mean that marketing in March is the most profitable decision as additional weight could be added the next several weeks.
On the flip side, stocker producers may want to wait out the high prices and let the prices begin to soften before finishing the purchasing process. This may not be a feasible alternative if only a couple of loads are being purchased. It appears there have been some changes in the marketing dynamics the past several months.
The first change is in relation to graded feeder cattle sales. Historically, producers benefited from graded feeder cattle sales in two ways, heavier calf weights because they are weigh in markets and a price premium of $3 to $4 per hundredweight over the weekly auction market. However, the price premium seems to have diminished.
This could be because the average quality of the cattle being marketed in these sales has declined relative to previous years or because cattle buyers still find them to be too risky relative to the higher price. However, producers can still benefit from the heavier weights because they are weigh in markets.
The second observation is the price slide that feeder cattle weighing more than 900 pounds are taking now that feed costs have declined. Most of these heavy feeder cattle are being marketed in load lots, but it appears the feedlots are looking to place cattle a little lighter than 900 pounds. These are just a couple of things producers should be evaluating at this time.
The March cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of March 1, 2016 totaled 10.77 million head, up 0.8% from a year ago, with the pre-report estimate average expecting an increase of 0.4%. February placements in feedlots totaled 1.55 million head, up 10.3% from a year ago with the pre-report estimate average expecting placements up 9.0%. February marketing’s totaled 1.52 million head up 4.9% from 2015 which is consistent with the pre-report estimate of up 4.6%. Placements on feed by weight: under 600 pounds up 1.5% and 600 pounds and over up 12.6%.
ASK ANDREW, TN THINK TANK: The grass fed beef conference this week was very informative and enlightening. A question was asked related to what a producer should market grass fed beef for in order to be profitable. The answer is ‘I don’t know.’ Producers should calculate and evaluate the expected costs of producing grass fed beef. The producer should then calculate a breakeven price to determine a minimum price for their product. After calculating the breakeven price, producers may want to add in a profit objective to determine a price that will provide them with an acceptable profit for managing a grass fed beef operation. Once that price is set then the producer should evaluate if consumers are willing to pay that price for the product.
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 –April $139.83 -1.33; June $129.10 -1.60; August $123.33 -1.50; Feeder cattle - March $163.23 -0.50; April $162.20 -2.98; May $160.70 -3.85; August $159.55 -3.38; May corn closed at $3.67 down $0.02 from Thursday.