By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle trade was $3 lower than a week ago on a live basis. Live prices were mainly $136 while dressed trade was mainly $218. The 5-area weighted average prices thru Thursday were $136.01 live, down $4.51 from last week and $217.70 dressed, down $6.67 from a week ago. A year ago prices were $163.98 live and $260.00 dressed.
Finished cattle prices took a hit this week, but it was not a total surprise. Cattle prices began increasing earlier than is normal and they increased at a much faster rate than is normal. The markets are never an exact science but there are general tendencies that observers expect the market to follow. Now that the market has increased earlier than normal and has started to soften in late March, the question may be if the market will have its normal spring price increase.
There will likely be some strengthening in the market, but it may be an abbreviate price increase and a rather small increase relative to historical data due to the recent price increase. Beef demand starting the grilling season will be a primary determinant.
BEEF CUTOUT: At midday Friday, the Choice cutout was $226.24 up $1.40 from Thursday and down $6.05 from last Friday. The Select cutout was $216.45 down $0.86 from Thursday and down $6.86 from last Friday. The Choice Select spread was $9.79 compared to $8.98 a week ago.
Boxed beef prices were in for a correction after the premature escalation in prices in February and March. The price increase for both the Choice and Select cutouts was surprising to say the least. Beef prices generally flounder during those two months but were able to find traction somehow. The market has seemed to have found itself and choked back down the unseasonably high prices. Retail features this week have been all about ham.
Beef just cannot get a foothold in the retail sector the week leading up to Easter. Beef prices should find support following Easter, but the recent rise and decline may put a bit of a damper on the market the next few weeks as the retail and foodservice sectors try to determine their needs leading up to the grilling season.
They may also be bearish on purchasing high priced beef with some uncertainty surrounding consumer purchasing intentions. The water has become choppy again in the beef market, but there is little need for concern as the market does appear to be evening out.
OUTLOOK: Just as one thinks that the market has escaped the roller coaster ride of volatility to some degree, the free fall takes full effect once again. Futures markets had a two week period at the end of February and the beginning of March in which the market traded within a $5 per hundredweight range. The market then broke away to the upside with a much stronger force than most anticipated resulting in more than $7 gains on the March contract in five trading days.
Their anticipation must have been correct because March feeder cattle futures have now lost $8 to $10 dollars in most instances in the past five trading days. It does appear the market will settle back into the previous trading range which was set in late February. To some degree this is troubling to see volatility reenter the market, but it actually brings some comfort because the traders in the market seem to think they know where feeder cattle prices should be.
The decline in futures did severe the grass cattle market’s positive price movements. Thus, producers who were waiting another week to market cattle did so at a great expense. The lightweight calf market is not expected to do much more strengthening, but rather begin to soften as days are marked off the calendar into spring and summer. It is not all bad news because the trading range that the market has returned to should provide producers with the ability to make more informed marketing decisions.
In the past 18 months, producers have been trying to outguess a market that did not even know what game it was playing. Thus, producers should settle in for seasonal cattle prices and make management and marketing decisions based on such. There still seems to be discounts on feeder cattle in late summer, but more than likely that will work itself out over the next couple of months.
Producers looking to market cows that need to be culled from the herd should begin considering their alternatives and timing. The time period in which these cattle seasonal bring the highest prices is just a month and a half down the road and now is the time to be running some numbers.
ASK ANDREW, TN THINK TANK: One of the most often asked questions by cattle producers has to do with them asking what they can do to make more money. In actuality the answer is likely different for all of them, but the answer often deals with the same concept. Producers of any agricultural commodity need to know how and where they are going to market their product. Producers need to develop their market before doing anything else. If a market is not established then producing is the incorrect decision. The second answer to the question is cost management. After a market is developed or known, producers need to manage costs in such a way that results in the lowest marginal cost per unit of production.
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.
THURSDAY’S FUTURES MARKET CLOSING PRICES: Thursday’s closing prices were as follows: Live/fed cattle –April $135.85 0.40; June $125.38 0.28; August $120.83 0.83; Feeder cattle - March $160.98 -0.43; April $155.83 0.28; May $155.03 0.28; August $154.85 0.60; May corn closed at $3.70 up $0.02 from Wednesday.