By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle traded $2 higher on a dressed basis compared to a week ago. Live prices were mainly $131 to $133 while dressed trade was mainly $210 to $212. The 5-area weighted average prices thru Thursday were $130.66 live, up $0.60 from last week and $210.55 dressed, up $0.92 from a week ago. A year ago prices were $156.69 live and $251.37 dressed.
Finished cattle markets were a little firmer this week, but packers were hesitant to lay very many dollars on the table. It is not uncommon for finished cattle prices to begin increasing towards the end of February, but significant increases are few and far between this time of year.
The finished cattle market will likely gain more steam the latter half of March and beginning of April as demand for beef seasonally strengthens. Cattle feeders welcome higher prices as margins on closeouts remain deep in the red. The expected margins on cattle being placed in feedlots should be positive at this time, but if volatility in the market persists then we could see margins fall back into the abyss.
BEEF CUTOUT: At midday Friday, the Choice cutout was $218.83 up $0.07 from Thursday and up $6.57 from last Friday. The Select cutout was $213.74 down $0.24 from Thursday and up $5.20 from last Friday. The Choice Select spread was $5.09 compared to $3.72 a week ago.
February is a weak demand month for beef, but the market has found a way to push forward this week. Most of February has been marred with eroding wholesale beef prices, but not the final week of the month. Both the Choice and Select cutout prices found a way to muster some steam. However, the overall trend in wholesale beef prices is a decline which is spilling over into the retail sector.
The price of Choice beef at retail in January was $5.975 a pound which is 43.7 cents lower than May of 2015. Similarly, the all fresh retail price of beef has declined 39.2 cents over the past six months to $5.756 per pound. As of January, the Choice beef to pork retail price ratio was 1.58. This ratio remains higher than the average ratio which is closer to 1.44, but the decline from a ratio of 1.73 in May 2015 means beef is becoming more price competitive.
Similarly, the price ratio of Choice beef to chicken was 4.18 in January. Historically, the average ratio in the past five years has been closer to 3.63, but the ratio has come off its peak in August of 4.43. The next couple of years will provide information concerning consumers’ willingness to come back to the beef counter if they were priced out of the market.
OUTLOOK: Feeder cattle futures have steadily increased the past two weeks, but the current price increase does not appear to have as much volatility as many of the price movements the past year. Market participants may finally be getting a grasp on the value of feeder cattle and finished cattle at this time. The firming live cattle market is what is driving increases in the feeder cattle market which is how the market works most efficiently.
On the cash side of calves and feeder cattle, lightweight calf prices continued to firm this week. The prospects of a few nice days of sunny and warm weather may offer producers an opportunity to put cattle on the trailer and haul them to town. Sellers should have no worries as plenty of stocker producers will be sitting on the rail waiting for the calves to walk into the ring. It is understandable that producers selling calves want to sell when the price is highest.
The next three to four weeks should present sellers the opportune time to offload calves that will perform well on grass. What week prices will be the highest is not certain until after the fact. Thus, producers are encouraged to evaluate their marketing alternatives, calculate expected returns, and not be greedy. Dollars always seem to be lost when producers continue to think prices will go higher the next week.
Producers may also want to begin considering the marketing opportunities for cows that need to be culled from the breeding herd. These cows make up 15 to 20 percent of the revenue on a cow-calf operation, and the market is approaching the time period when slaughter cow prices peak. Slaughter cow prices tend to peak in May or early June which is when many producers get busy with hay and crop work, but the operation may benefit more with timely marketing of cows.
Stocker producers are crunching the numbers and the numbers are manageable. Assuming the purchase of a 525 pound steer today and the sale of an 825 pound steer in August, the futures market is offering a value of gain of 94 cents per pound. This means many producers can make a little margin but profits are not going to be huge.
ASK ANDREW, TN THINK TANK: A question was asked in Weyers Cave, Virginia yesterday about the herd sire market and the direction it is going. Herd sire prices have already begun to decline, and the market is expected to continue to soften as calf prices soften. Commercial cattlemen should continue investing in strong genetics even with calf prices declining. Good genetics in feeder cattle will continue to be more marketable than poor genetics and those good genetics may actually have more value in a declining market than in a strong market. The reason for this is because feedlot managers can be more selective in what they purchase when the supply of calves increases relative to when the supply of feeder cattle is low.
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 –April $137.23 -0.13; June $126.10 0.30; August $121.45 -0.03; Feeder cattle - March $158.50 -0.60; April $158.75 -0.53; May $157.25 -0.30; August $156.60 -0.10; March corn closed at $3.55 down $0.01 from Thursday.