Market Highlights: Fed Cattle Prices Continue Downhill Slide

September 15, 2015 09:43 AM
 
Market Highlights: Fed Cattle Prices Continue Downhill Slide

By: Andrew P. Griffith, University of Tennessee

FED CATTLE: Fed cattle traded $3 lower on a live basis compared to a week ago. Live prices were mainly $139 to $140 while dressed trade occurred between $217 and $220. The 5-area weighted average prices thru Thursday were $139.98 live, down $1.22 from last week and $220.09 dressed, down $2.03 from a week ago. A year ago prices were $158.70 live and $249.83 dressed.

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Feedlot operators continue to struggle pushing live cattle prices higher. Many feeders in the North are pushing cattle out of pens because heavy carcasses are being discounted and the feedlot cannot afford to lose money to too heavy of a carcass. This week marks the twelfth consecutive week that fed cattle prices have been below year ago prices.

The first 24 weeks of the year saw 2015 prices exceed 2014 prices by an average of more than $14 per hundredweight on a live weight basis. Since that time, prices have averaged more than $9 lower than a year ago and the gap grew wider this week. Fed cattle prices will continue to struggle the next couple of months, but a resurgence may be in the making come December.

BEEF CUTOUT: At midday Friday, the Choice cutout was $237.98 down $1.08 from Thursday and down $2.65 from last Friday. The Select cutout was $227.13 down $0.97 from Thursday and down $2.02 from last Friday. The Choice Select spread was $10.85 compared to $11.48 a week ago.

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The Choice cutout has declined nearly $7 the past three weeks while the Select cutout has slid nearly $8 over the same time period. Now that all of the summer grilling holidays have come and passed, it will be difficult for packers to move beef at higher prices.

There is generally a lull in prices following Labor Day and this week’s softer prices are indicative of that lull. There will not be much support for beef the next couple of months as consumer interest generally declines this time of year. Consumer interest in high valued beef cuts will not pick back up until the holiday season.

The slowdown in beef exports will continue to hamper domestic beef prices, but it is not only the export market keeping the beef cutout in check. The strength of the U.S. dollar relative to other currencies has made imports less expensive and thus more attractive. In the first seven months of 2015, the U.S. has imported 32.4 percent more beef and veal than the same seven months in 2014. The continuation of relatively inexpensive beef imports will keep the domestic beef market in check.

OUTLOOK: Seasonality of cattle prices appears to have taken control of the cattle market. Calf prices have started to slowly decline the past few weeks as producers have begun bringing calves to market. The seasonal increase in calf marketings generally begins in September and ends in November with the peak month of calf marketings being October.

There is no indication this year will be any different. Prices for calves will most likely continue to erode as the market moves deeper into the fall. Producers should not be discouraged by this price decline though. Historically speaking, the market continues to experience extremely strong calf and feeder cattle prices which should result in strong profits for cow-calf producers across the state and nation.

There should be strong demand for calves this fall which is another positive for calf prices. Much of the Southern Plains region has continued to receive adequate rainfall resulting in 78 percent of range and pasture being considered in fair to excellent condition.

Additionally, adequate moisture in the Southern Plains should bode well for winter wheat pasture and thus competition to secure calves to graze through the winter and early spring. There should also be fairly strong competition for calves in the Southeast as about 80 percent of pasture acres are rated in fair to excellent condition. If good moisture conditions continue then the calf market will likely be supported due to favorable availability of forage.

Alternatively, if dry conditions set in this fall then calf prices could decline more than currently expected. Stocker producers should be evaluating forage availability and supplemental feed costs to determine what can be paid for stocker cattle and still return a desired profit margin. Slaughter cow prices have also started their seasonal decline.

Many producers market these cows when they wean calves in the fall which pressures prices lower. Though this may be the best option, producers should remember that market cows represent 15 to 20 percent of total revenue in a cow-calf operation and maximizing the value of those market cows can mean the difference in a profit or a loss in many years.

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ASK ANDREW, TN THINK TANK: It was brought to my attention this week by Mike in Rutherford County that the Pasture, Rangeland and Forage program has been approved for the state of Tennessee for 2016 and the sales closing date is November 15, 2015. This program is a pilot insurance program designed to provide insurance coverage on pasture, rangeland and forage acres. The program is designed to give producers the opportunity to purchase insurance protection for losses of forage produced for grazing or harvested for hay that can result in increased feed costs, destocking, or depopulating livestock. The program is based on the Rainfall Index which uses NOAA CPC data which is also used to determine insurance payments. This insurance can be purchased through crop insurance agents. 

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 $140.53 -2.43; December $142.40 -2.30; February $142.78 -2.13; Feeder cattle - September $200.45 -3.50; October $194.75 -3.75; November $192.68 -3.20; January $187.00 -3.10; September corn closed at $3.75 up $0.13 from Thursday.

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