Market Highlights: Cattle Up, Still Behind Last Year

August 18, 2015 10:28 AM
 
Market Highlights: Cattle Up, Still Behind Last Year

Cattle prices are up, but still behind last year's high water mark.
By: Andrew P. Griffith, University of Tennessee

FED CATTLE: Fed cattle trade was not well established at press. Asking prices were firm at $153 on a live basis and $243 on a dressed basis. The 5-area weighted average prices thru Thursday were $152.73 live, up $4.25 from last week and $239.29 dressed, up $5.54 from a week ago.

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A year ago prices were $154.74 live and $243.69 dressed. The live cattle market continues to jump off its summer lows with strong gains again this week. Current fed cattle prices generally do not support feeder cattle prices, but they may be providing some of the current price strength as deferred live cattle contracts do not appear to be pricing a stronger market.

The August live cattle contract through April contract is trading within a $2 range with a $7.50 per hundredweight decline moving from April to June 2016. Fed cattle prices generally experience a fall time period peak and could easily increase 13 percent from summer lows. Thus, it is feasible that fed cattle prices could reach $164 or higher this fall or before year end.
 
BEEF CUTOUT: At midday Friday, the Choice cutout was $244.61 down $0.48 from Thursday and up $9.14 from last Friday. The Select cutout was $234.78 down $0.35 from Thursday and up $5.09 from last Friday. The Choice Select spread was $9.83 compared to $6.33 a week ago.

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The Choice cutout is up more than $13 the past three weeks. The stronger price was expected but the surge to current levels is somewhat unexpected. After reaching their summer lows, boxed beef prices generally make a slow trek to late fall highs that are related to the holiday season. Thus, is boxed beef going to over price itself in late summer and then see a correction before it sees more improvement this fall?

As boxed beef prices continue to escalate, more and more questions arise. If boxed beef prices continue to rise in the near term then there is a good possibility that prices will either go in a correction mode and decline of they will stagnate during the fall months. Either way, the story does not sound very good for boxed beef prices. However, boxed beef prices could continue to forge ahead with little to no resistance, but this third alternative does not seem plausible given where that would put retail beef prices.

Packers do a fairly good job of manipulating boxed beef prices by playing with supply, and some of this price increase could be due to reduced harvest rates.

OUTLOOK: This week’s calf and feeder cattle market held firm with strong gains in the steer market and firmer prices for heifer calves. The feeder cattle market tends to heat up this time of year and the market is not bringing with it any disappointment in 2015. Many analysts are concerned with where feeder cattle prices may go when all the feeder cattle that are still out to pasture come to market.

The market continues to provide backgrounding operations incentive to add weight to feeder cattle which has resulted in producers holding them longer and thus delaying those animals’ placement into the feedlot. Many analysts are prognosticating that the price of feeder cattle will plummet this fall when many of those animals begin making their way to the feedlot. Some of this concern if not all of it has been priced into feeder cattle futures.

The August contract is trading near the $214 price mark and the subsequent contract months erode to just under $206 for the November contract. It does not stop there. All 2016 contract months that are currently being traded are under the $200 per hundredweight price point, but what does that mean? It means about $120 per head less of revenue come 2016 than the current market.

There is no reason to panic at this point, but it does provide reason for stocker and backgrounding operations to consider risk management strategies if a favorable pricing opportunity presents itself. Most stocker producers have not purchased many cattle at this point that will be marketed in 2016. However, those purchases will begin picking up come September when cow-calf producers begin setting wheels under freshly weaned calves.

Thus, managers of stocker and backgrounding operations are encouraged to begin watching the expectation of market prices next spring so that a favorable pricing opportunity can be secured if one becomes available. The last thing a producer wants to do is lose money, but the next to last thing is forgo revenue that could have been secured at an earlier date.

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ASK ANDREW, TN THINK TANK: Whether you are buying hay or selling hay, a question arose this week concerning hay auctions. Martin asked if there were any hay auctions in Tennessee with price information. The main part of the question was with regards to pricing hay. The only hay auction I am familiar with is at the University of Tennessee Research and Education Center in Greeneville. However, price information from this auction may not mean much to producers across the entire state. Hay is a very regional commodity and it is expensive to transport. Thus, buyers and sellers of hay have their work cut out for them when trying to determine a price. Sellers need to know cost of production in order to determine an acceptable sale price. If the hay cannot be marketed for a price higher than the cost of production then hay production should probably cease for the operation. Similarly, hay buyers need to determine the maximum price they can afford to pay for hay. To make this determination, it is important to know the quality of the hay as well as the price of other feedstuffs that can be substituted to meet minimum nutritional requirements for the cattle. If anyone knows of hay auctions in the area then please pass that information along so it can be disseminated. 

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 –August $148.80 -0.05; October $147.38 -0.48; December $149.23 -0.25; Feeder cattle - August $214.13 0.10; September $209.45 -0.88; October $207.40 -0.93; November $205.20 -1.00; September corn closed at $3.64 up $0.01 from Thursday.

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