Market Highlights: Cattle Price Turnaround on Horizon

October 13, 2015 09:50 AM
 
Market Highlights: Cattle Price Turnaround on Horizon

Cattle futures jumped up almost $9, a sign that the fed cattle market could stop sliding.
By: Andrew P. Griffith, University of Tennessee

FED CATTLE: Fed cattle traded $6 to $10 higher on a live basis compared to a week ago. Live prices were mainly $126 to $127 while dressed trade was not well established. The 5-area weighted average prices thru Thursday were $118.52 live, down $0.09 from last week and $190.00 dressed, up $2.49 from a week ago. A year ago prices were $163.54 live and $257.79 dressed.

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The fed cattle market has been in turbulent times the past couple of months, but a hint of a turnaround appeared this week. October live cattle futures increased nearly $9 from Monday thru Thursday which resulted in some finished cattle trading relatively low early in the week and a bit higher late in the week. It may be that the worst is behind the market as it relates to heavy cattle, but heavy cattle and slower beef demand is not the only thing weighing on finished cattle prices.

Hide and offal values have declined $3.64 per hundredweight since the beginning of the year and are about 28 percent lower than a year ago. This is a significant loss to the total value of a finished animal and may continue to weigh on the market.

BEEF CUTOUT: At midday Friday, the Choice cutout was $202.97 down $0.64 from Thursday and down $3.78 from last Friday. The Select cutout was $197.93 up $0.47 from Thursday and down $5.45 from last Friday. The Choice Select spread was $5.04 compared to $3.37 a week ago. The Choice cutout is trading about $42 lower than the same week one year ago while the Select cutout is trading about $35 lower compared to a year ago.

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This is the first week the Select cutout has fallen below the $200 mark since the first week of 2014. The second week of 2014 was the first time the Select cutout had ever traded above the $200 level. Similarly, the Choice cutout is flirting with falling below the $200 price level for the first time in 93 weeks. Some of the price decline can be attributed to increased beef, pork and poultry production.

Federally inspected beef production the past five weeks is 29.3 million pounds greater than the same five weeks in 2014. However, when comparing the same five week period in 2015 to 2013, beef production is 107.2 million pounds lower than in 2013. Alternatively, pork production the past five weeks is 184.2 million pounds and 118.1 million pounds great than the same five weeks in 2014 and 2013 respectively. Similarly, poultry production the past five weeks is 205.2 million pounds greater than 2014 and 441.5 million pounds greater than 2013.

OUTLOOK: Calf and feeder cattle markets took a hit again this week on Tennessee auctions with prices $5 to $10 lower per hundredweight than the previous week. The price of steers weighing 500 to 600 pounds has declined $56 per hundredweight since the first week of August while 700 to 800 pound steer prices have declined $44 per hundredweight over the same time period on Tennessee auctions.

Calf and feeder cattle prices will continue to be pressured by lower fed cattle prices and the fall run of spring born calves. However, there was one bright spot this week in the feeder cattle market as the October feeder cattle futures contract gained more than $9 per hundredweight from Monday thru Thursday. Similar price improvements occurred in deferred feeder cattle futures contract months.

There is no certainty the higher feeder cattle futures price this week will carry over to next week, but the reversal does indicate that support for feeder cattle prices exists. The upward movement in feeder cattle futures prices may provide enough incentive for producers to hold on to calves a little while longer and continue putting weight on those animals.

The decision to sell now or grow calves for another 60 to 75 days depends on the amount of risk one may be willing to take. There is some indication that prices will improve later in the year or after the first of the year which means producers could possibly benefit from higher prices and additional pounds to sell. Producers should keep an eye on the finished cattle market the next several weeks which will lead the feeder cattle market.

If the fed cattle market begins retracing its steps to higher prices then it is very likely feeder cattle prices will follow to some degree. The most likely scenario is for finished cattle and feeder cattle to slowly scale the mountain the next couple of months in regaining some of the losses over the past two months. How high fed cattle go will determine how high feeder cattle prices go. There is a possibility of finished cattle reaching back to the $140 mark before the end of the year which means feeder cattle may be able to get back to the $190 to $200 range.

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ASK ANDREW, TN THINK TANK: This week I would like to share something I learned which was brought to my attention by a couple of producers in Cleveland, Tennessee. The topic has to do with the insurance that livestock marketing agencies carry for a producer’s cattle. I knew most marketing agencies carried insurance that would pay the full value of cattle that die or get injured while on the premise of the marketing facility. However, I was not aware that some marketing agencies carry insurance for when the cattle intended for sale are in transit either to or from the marketing facility. Producers should make sure they are aware of what the insurance covers because after all, the producer is paying the marketing agency to carry the insurance. 

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 $131.48 0.30; December $137.95 0.28; February $139.85 0.68; Feeder cattle - October $189.58 1.70; November $185.75 1.65; January $180.65 1.75; March $178.75 1.35; December corn closed at $3.83 down $0.09 from Thursday.

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