Time is running out for the cattle market to make a run this year.
By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle traded $2 to $3 lower on a live basis compared to a week ago. Live cattle trade was mainly $123 to $124 while dressed trade primarily ranged from $190 to $193. The 5-area weighted average prices thru Thursday were $123.41 live, up $0.19 from last week and $194.44 dressed, down $0.56 from a week ago. A year ago prices were $166.61 live and $263.97 dressed.
The likelihood of finished cattle making any kind of run in December is dwindling. The market continues to be hampered by heavy cattle even though the bulk of the problem has been pushed through the packer. There is no doubt cattle feeders continue to hold back market ready cattle in hopes of selling on a stronger market.
This strategy may seem logical to some as cattle can be held for a short time without negatively impacting the bottom line significantly. However, after a while, it is a situation of throwing good money at bad money. The logic of such a move has only resulted in cattle feeders marketing finished cattle at heavier weights and lower prices. The added weight would have been beneficial had prices stabilized, but that has not been the case.
BEEF CUTOUT: At midday Friday, the Choice cutout was $203.37 down $1.12 from Thursday and down $1.61 from last Friday. The Select cutout was $192.62 down $0.40 from Thursday and down $3.05 from last Friday. The Choice Select spread was $10.75 compared to $9.31 a week ago.
Similar to cattle feeders, packers are having a difficult time of finding support for wholesale beef prices. Retailers do not seem to be featuring beef much more than they were prior to Thanksgiving. There remains time for beef features to pick up for the holiday season and thus support wholesale beef prices, but retailers may hold firm with current prices as margins on beef remain thin at best.
Middle meat prices have been somewhat supportive of the cutout the past few weeks which is what generally drives the holiday market. However, price declines in other primal cuts have more than offset the gains in higher valued cuts.
Several factors continue to work against the beef market and thus the cattle market. The export market is a major player. The beef export market has been hampered by the strong value of the dollar and high priced beef, but it is not all about beef exports.
Other meat proteins such as pork and poultry have dwindled. Poultry exports have been disrupted since the first case of Highly Pathogenic Avian Influenza while pork exports have slowed due to Russia and the European Union.
OUTLOOK: What positive words can be shared about the calf and feeder cattle markets? Prices are still higher than they were the first week of December 2013! Making that statement may seem like a stretch to some producers, but in the fall of 2013 producers considered calf and feeder cattle prices to be extremely strong. In actuality, market prices this week compared to December 2013 could be stated as steady to $2 per hundredweight higher.
It is unlikely the sentiments of prices today being equivalent to prices two years ago makes anyone feel better about where the market is. The reason for the dismay in prices is largely due to the fact that prices are declining and would appear to have limited support. Conversely, prices in December of 2013 were escalating and doing it at a fairly rapid pace which boded well in most cattle producers minds.
People tend to have a more positive outlook on any situation when it appears it is moving in the direction desired whereas the outlook turns more negative when the movement is in a less desirable direction. In this case, prices in December of 2013 and 2015 are essentially the same, but the price in 2013 was received with a more positive attitude than in 2015 due to the direction of the price movement. Our perception of it being good or bad is based on immediate direction of the movement.
With that being said, feeder cattle futures contract prices continue their descent which may bring angst to many folks in the cattle industry. However, the fundamentals of the cattle market continue to support prices. It would also appear that feeder cattle are undervalued looking into 2016. This is a strong statement considering prices continue to deteriorate.
Though feeder cattle futures contract prices have declined more than $20 per hundredweight the past month and a half, some resemblance of support appears to be taking shape. It would not be out of the markets ability to bounce back after the first of the year. How high prices bounce back is another beast, but recovering some of the dollars lost today is not out of the question for next month’s market.
ASK ANDREW, TN THINK TANK: Producers commonly ask if prices are “good,” or what is a good price? In a discussion this week, I have finally developed what I think is an acceptable answer. The price is a “good” price if it results in revenue exceeding cost of production. The discussion revolved around cost of production and how few people actually know their cost of production. It is imperative for producers to know cost of production in order to determine an acceptable price for their good. It is also a favorable approach for producers to determine a target price after determining their break-even price which provides them an opportunity to price in what is an acceptable profit. Once the target price is met, producers would then be encouraged to take action to secure the price.
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 – December $123.95 -0.95; February $128.65 -0.80; April $129.55 -0.13; Feeder cattle - January $158.80 -0.95; March $156.75 -1.05; April $157.90 -1.00; May $158.08 -1.23; December corn closed at $3.76 up $0.06 from Thursday.