Cattle prices are up significantly from last year, while beef prices slide from last week.
By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle traded steady on a live basis compared to a week ago based on limited numbers. Live prices were primarily $160 to $161 while dressed trade was mainly $259 to $260. The 5-area weighted average prices thru Thursday were $160.78 live, up $2.91 from last week and $259.09 dressed, up $9.09 from a week ago. A year ago prices were $147.92 live and $239.80 dressed.
It would seem short bought packers would be forced to pay higher asking prices for fed cattle this week, but most packers are reluctant to do so due to poor processing margins. Packers are already finding themselves in the red based on fed cattle prices and beef cutout prices. Though packers are slow to pay higher prices for cattle, they still have orders to fill.
Seasonally speaking, fed cattle prices will be supported as the market moves through early spring. The primary resistance to increases in fed cattle prices will be the retail price of beef and its inability to moderate in the near term. Cattle feeders will find it difficult to pressure fed cattle prices continually higher due to the difficulty packers will have pressuring boxed beef prices higher.
BEEF CUTOUT: At midday Friday, the Choice cutout was $244.07 down $1.91 from Thursday and down $4.92 from last Friday. The Select cutout was $244.59 down $1.20 from Thursday and down $1.04 from last Friday. The Choice Select spread was -$0.52 compared to $3.36 a week ago.
Packers continue to fall on hard times as beef cutout prices slipped this week. Packers are finding it difficult to pay higher prices for fed cattle while beef cutout prices are faltering. Neither Choice cuts nor Select cuts are immune to the price decline. However, Choice beef is feeling more of the pressure than Select beef.
The Choice Select spread generally narrows in February and March due to consumers moving from middle meats where most of the steak cuts come from to end meats where most of the roast cuts originate. Consumers generally differentiate a Choice steak from a Select quality steak, but they do not generally differentiate between a Choice roast and Select roast due to preparation method. Thus, the Choice Select spread narrows in late winter when consumers are purchasing roasts, because many consumers will purchase the less expensive Select roast.
As of mid-day Friday, the Select cutout was trading slightly higher than the Choice cutout, but this will not last long as buyers will quickly move back to the less expensive product.
TENNESSEE AUCTIONS: On Tennessee auctions this week compared to a week ago steers and bulls were $2 to $7 higher. Heifers were $1 to $6 higher. Slaughter cows were $1 to $4 higher while slaughter bulls were steady to $1 higher. Average receipts per sale were 631 head on 9 sales compared to 611 head on 9 sales last week and 825 head on 12 sales last year.
OUTLOOK: Weather continues to hamper the cattle marketing process as muddy fields and rain continue to make it difficult for producers to gather calves. Three weeks of inclement weather have resulted in pent up stocker cattle demand that may reveal itself next week as there is an expectation of a strong run of calves with the warm weather and sunshine.
Stocker cattle producers should have a nice selection of animals the next couple of weeks as cow-calf producers set wheels under calves. However, stocker producers can expect to pay between $1,350 and $1,400 per head for 525 pound steers.
Similarly, producers looking to secure heifers can expect to pay between $1,200 and $1,250 for 525 pound heifers. The purchase of stocker cattle is a tremendous investment and higher prices have resulted in an increase in financial risk. Some of the financial risk can be managed by managing price risk through the use of futures, options, livestock risk protection insurance or forward contracts.
Feeder cattle futures contract prices on nearby and deferred contracts have increased $15 to $19 per hundredweight from their contract lows experienced the last week of February. The increase in futures contract prices may be providing a favorable pricing opportunity for feeder cattle to be marketed in future months.
The price increase has also provided more favorable rates for purchasing options and insurance policies. Lightweight calf prices are not expected to sustain current levels through the entirety of the spring. They are expected to follow a more seasonal pattern which has not been the case the past couple of years. Similarly, yearling feeder cattle are expected to follow a more seasonal pattern this year.
Cash prices of yearling feeder cattle are expected to increase through the spring and early summer and likely peak in late July through the middle of August. Though the expectation for prices is positive, producers are still encouraged to consider risk management alternatives.
TECHNICALLY SPEAKING: Based on Thursday’s closing prices, April live cattle closed at $155.80. Support is at $154.97, then $153.47. Resistance is at $156.47, then $157.97. The RSI is 57.13. June live cattle closed at $146.63. Support is at $145.67, then $143.92. Resistance is at $147.42 then $149.17. The RSI is 53.92. August live cattle closed at $144.63. Support is at $144.60, then $142.08. Resistance is at $144.70, then $145.00. The RSI is 53.28. March feeders closed at $214.68. Support is at $213.14, then $210.32. Resistance is at $215.97, then $218.97. The RSI is 65.14. April feeders closed at $212.90. Support is at $211.05, then $207.15. Resistance is at $214.95 then $218.85. The RSI is 63.91. May feeders closed at $211.93. Support is at $211.25, then $208.35. Resistance is at $212.45 then $213.78. The RSI is 63.64. Friday’s closing prices were as follows: Live/fed cattle – April $154.28 -1.53; June $145.28 -1.35; August $143.63 -1.00; Feeder cattle - March $213.13 -1.55; April $211.23 -1.68; May $209.73 -2.20; August $211.20 -1.48. March corn closed at $3.74 down $0.08 from Thursday.