By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle trade was not well established at press. Live cattle bids ranged from $132 to $135 while a few cattle traded on a dressed basis between $210 and $212. The 5-area weighted average prices thru Thursday were $131.00 live, up $4.38 from last week and $209.16 dressed, up $7.16 from a week ago. A year ago prices were $159.47 live and $250.07 dressed.
Cattle feeding margins have improved a little the past couple of weeks with the increase in finished cattle prices. However, closeouts remain deep in the red because these cattle were placed at a time when feeder cattle prices were still extremely high relative to today’s prices.
Cattle feeders are continuing to reel from losses, but many of them see some light at the end of the tunnel as the cost of replacement cattle to fill pens is greatly reduced compared to just four or five months ago. The last six months or so have been a complete equity drain for cattle feeders and the positive margins that may be seen this year will do little to restore the losses. Cattle feeding price risk will remain high throughout 2016.
BEEF CUTOUT: At midday Friday, the Choice cutout was $218.85 down $1.27 from Thursday and down $6.58 from last Friday. The Select cutout was $217.33 up $1.90 from Thursday and down $3.65 from last Friday. The Choice Select spread was $1.52 compared to $4.45 a week ago.
The Choice Select spread is narrowing rapidly as consumers pull more heavily on end cuts as opposed to middle meats. The preparation method for most end cuts such as the chuck or the round result in consumers finding little reason other than price to differentiate between Choice meats and Select meats. The narrowing of the Choice Select spread during the winter is common and comes as no surprise to the majority of industry participants.
It is also important to note that even though the spread is narrowing it is not because the Select cutout is strengthening, but rather because the Select cutout is not declining as quickly as the Choice cutout. The Choice Select spread will remain narrow through most of February before Choice cuts begin to gain relative strength on Select grade beef. At that time, middle meat prices will begin to support the Choice cutout while the Select cutout will soften.
For most packers and feeders in the cattle industry, the grilling season cannot come soon enough, but only time will tell what the decisions the consumer will make this year.
OUTLOOK: Cattle markets have long been removed from seasonal trends. The disappearance of seasonal price trends was greatly impacted by cattle herd culling and marketings in the Southern Plains from 2010 through the first half of 2013 and nationwide cattle herd sales in 2012 and 2013.
Marketings of cattle at abnormal time periods and at abnormally large rates caused cattle prices to be relatively soft during months of the year when they tend to be relatively strong. Similarly, when adequate precipitation supported herd expansion, reduced cattle marketings due to retaining heifers, retaining cows, and a smaller number of feeder cattle resulted in strong cattle prices during months of the year that generally have the lowest prices of the year.
Take for instance lightweight calf prices. Calf prices generally peak in the early spring months before tapering off through the summer and reaching a bottom in the fall. Starting with 2013, calf prices in the fall of 2013 were stronger than the spring of 2013 primarily because feed prices moderated in the last four or five months of the year. Prices in 2014 began the year strengthening every week and then never stopped strengthening which resulted in higher calf prices in the fall than in the spring.
A certain degree of normalcy returned in 2015 as calf prices were strong throughout late winter and all of the spring months before completely disintegrating in the summer and fall. However, the price collapse was overwhelming for a market that had been so strong. Now, the market sits in a position that may actually be more reflective of where cattle prices should be and thus the expectation of seasonal trends returns barring any major outside impacts to the market.
Calf prices have already begun to strengthen this week with $6 to $10 gains on steers and $3 to $6 gains on heifers on Tennessee weekly auctions compared to last week. Similarly, the slaughter cow market is beginning to strengthen with gains of $2 to $5 compared to a week ago.
Market cow prices generally peak in May or early June and there is no information at this time to suggest a deviation. Producers should keep an eye on heavier feeder cattle prices as those prices begin to strengthen in the spring and peak from late July through August.
The January 1, 2016 Cattle Inventory Report was released today indicating an increase in all cattle and calves of 3.2% to 91.99 million head compared to one year ago. Beef cow numbers increased 3.5% to 30.33 million head while beef heifers held as replacements increased 3.3% to 6.29 million head with 3.92 million of them expected to calve in 2016 which is an increase of 5.7% compared to a year ago. There will be more discussion on this topic in next week’s Market Highlights and the March edition of Tennessee Cattle Business.
ASK ANDREW, TN THINK TANK: A question arose in a meeting in Lincoln County this week concerning if a fall or spring calving season was best. The answer is it depends on individual resources, marketing strategy, breeding programs, and likely several other factors. Some research we are putting the final touches on shows fall calving herds to return more profit than spring calving herds when calves are sold at weaning. Fall calving herds have higher feed costs and lower weaning weights but the higher price received at sell overcomes the additional feed cost and lighter weights. This is not to say a fall calving herd is for everyone. There are certainly situations where producers are more profitable with spring calving. Producers are encouraged to evaluate spring and fall calving especially if the producer does not currently have a defined breeding and calving season.
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 –February $134.80 -0.63; April $133.33 -1.20; June $122.90 -1.08; Feeder cattle - March $156.38 -3.05; April $156.20 -2.75; May $154.95 -3.25; August $156.00 -3.33; March corn closed at $3.72 up $0.07 from Thursday.