By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle trade was $1 higher than a week ago on a live basis. Live prices were mainly $133 to $134 while dressed trade was mainly $214 to $215. The 5-area weighted average prices thru Thursday were $133.82 live, up $0.70 from last week and $214.47 dressed, down $0.37 from a week ago. A year ago prices were $163.13 live and $264.01 dressed.
Finished cattle prices held their ground this week after participating in a declining market the past three weeks. Live cattle prices are still $7 lower than prices received in the middle of March, but cattle feeders are accepting of a tourniquet when losses are mounting.
What may hurt cattle feeders the most is knowing that they were trading cattle on a live market that was $30 higher one year ago and $50 higher on a dressed basis. If finished cattle prices find any type of support in the spring market then cattle feeders will ease their way out of large losses over the next couple of months, but if the seasonal tendency is not intact then cattle feeders will continue to face red ink on closeouts.
BEEF CUTOUT: At midday Friday, the Choice cutout was $215.18 up $0.56 from Thursday and down $4.67 from last Friday. The Select cutout was $205.62 down $0.17 from Thursday and down $2.49 from last Friday. The Choice Select spread was $9.56 compared to $11.74 a week ago.
Though the Choice and Select cutouts ended this week with lower prices than last week, the late week price support of the cutout is encouraging for packers. Boxed beef prices have been reeling from the unseasonal strength in February and March which left many in the industry questioning what was causing the sudden price surge. Since then, prices have declined, but they could be preparing for their seasonal spring increase the next few weeks.
The weekend is supposed to be cool in many parts of the country, but favorable weather in the extended forecast bodes well for consumers firing up the grill. Retailers are definitely working to secure inventory for late April and May features as the grilling season will begin to rev up. History would indicate that consumers will turn to beef products as the unofficial beginning of summer approaches. Another contributor to support prices is the beginning of baseball season, and nothing goes better with a baseball game than a hamburger, peanuts and a cold beverage.
OUTLOOK: The futures market has been softer this week which has resulted in calf and feeder cattle markets moving lower in Tennessee compared to last week. The price decline was fairly small on most weight classes but a decline of any sort hampers the feelings of most on the selling side of the business. April feeder cattle futures have been trading between $147 and $166 per hundredweight since the middle of December which demonstrates strong support and resistance points for the April market.
Now that trade is in the middle of the April marketing time period, the support and resistance means little to those attempting to market or secure cattle in the near term. However, looking into the future, producers may want to consider the support and resistance in the late summer and early fall markets. For instance, the August feeder cattle contract has had a fairly wide trading range, but its closing prices have been banded between $149 and $166 since the latter part of December. With the contract currently trading in the low to mid $150s, producers may not see much benefit from using futures or options to manage price risk from a selling standpoint.
On the opposite side of the coin, buyers could potentially use the current market for the August contract to secure inventory to be placed on feed later in the year. If the August contract were to break through the $160 mark again then producers planning to market cattle in July and August may want to consider some form of action whether that be selling the futures market, purchasing a put, or purchasing livestock risk protection insurance.
In light of the current market volatility, producers need to be watching cattle prices extremely closely. The gains today and tomorrow could disappear by the next morning. Similarly, the market could provide a favorable but short marketing window at any point and producers should be ready to seize the moment. If marketing lightweight calves is the game plan then producers should be running the numbers. The other alternative is to wean those calves and precondition or background those cattle for a few months which lengthen the marketing window.
ASK ANDREW, TN THINK TANK: At a recent meeting, the question was asked how import and export policy is going to impact the beef business the next few years. The question was mainly in relation to the Trans Pacific Partnership which is a trade agreement between 12 countries. The agreement covers trade ranging from agricultural products to manufactured products. The key aspect of the agreement is to reduce tariffs on several products. From the beef standpoint, a key part is reducing tariffs in Japan from 38.5 percent to 9 percent over a 15 year period. This aspect will make U.S. beef more competitive with other exporting countries. However, not every aspect of the agreement is beneficial toward agriculture and proponents and dissenters should evaluate the agreement closely to determine its overall impact.
Please send questions and comments to email@example.com 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 $134.38 1.95; June $124.03 1.80; August $119.58 1.50; Feeder cattle - April $155.90 1.75; May $152.85 3.05; August $153.93 2.55; September $152.83 2.02; May corn closed at $3.62 up $0.01 from Thursday.