By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle trade was $6 higher than a week ago on a dressed basis. Live prices were not well established but asking prices were $140 while dressed trade was taking place at $220. The 5-area weighted average prices thru Thursday were $136.00 live, no change from last week and $218.09 dressed, up $6.09 from a week ago. A year ago prices were $160.78 live and $259.09 dressed.
Finished cattle prices continue their strong movement which is quickly digging cattle feeders out of a deep hole. Feedlot operators are continuing to holdout for higher prices and inevitably they are receiving higher price. It is not as if the packer is losing a lot of money as wholesale beef prices have also been supported, but cattle feeders are definitely feeling better about the trade as their losses continue to move toward profits.
If prices continue to push forward or even if they stagnate then there is a good chance cattle feeders will have closeouts with profits sometime within the next few weeks. Packers and feeders are playing the hands they were dealt and they seem to be doing a fairly good job.
BEEF CUTOUT: At midday Friday, the Choice cutout was $224.12 down $1.12 from Thursday and up $3.35 from last Friday. The Select cutout was $215.25 up $1.40 from Thursday and up $3.24 from last Friday. The Choice Select spread was $8.87 compared to $8.76 a week ago.
Wholesale beef prices have been amazingly strong through the end of February and the first couple of weeks of March. There does seem to be some indication that the unseasonably warm weather has jumpstarted the grills a little earlier than normal.
The warm weather has stretched over much of the country and beef consumers have been looking for any reason to fire up the grill and enjoy favorable weather conditions. This seems to be the case because the loin and rib primal are leading a ferocious charge for the time of year. Wholesale ribeye prices have been above year ago prices all year and were more than 11 percent higher this week than the same week one year ago.
Wholesale loins had been trading below year ago levels until just a couple weeks ago when a spark ignited an early price strengthening. There has also been an upswing in fresh 50 percent lean beef which is trimmings from finished cattle. The upswing in 50s means there is something going on in the ground beef business but what is causing it is less certain at this time.
OUTLOOK: There was very little change in feeder cattle markets this week compared to one week ago. Most weight classes of steers were steady to slightly softer while heifer prices were pressured a little more than the steers. The dry conditions and warm temperatures have boded well for calf and feeder cattle marketing as producers have been willing sellers the past couple of weeks. The trend of marketing lightweight calves will likely persist the next couple of weeks if cow-calf producers can get the trailer in the field to load calves.
The most likely winners in the market this week were stocker producers who had a wide selection of calves to choose from to fill inventory needs, and they were able to do it on a somewhat softer market compared to the previous week. However, the number of available calves will start to dwindle especially with two consecutive weeks of strong calf marketings across the state.
On the cow-calf side, there does appear to be incentive to continue to grow calves the next couple of months. The grass is starting to green which will result in a fairly low cost of gain while the value of gain shows profit potential for carrying calves to heavier weights. This strategy will likely only be beneficial if those calves are carried to 700 or 800 pounds and then marketed in a load lot, because lightweight calf prices will begin to be pressured in April and May and throughout the summer.
Alternatively, prices of cattle ready for the feedlot will begin to be supported in May and should remain fairly strong throughout August. Profitability in 2016 will not be nearly as high as it was in 2014 and 2015 but cattle producers should still rake in strong profits. These profits will result in continued cattle herd expansion but at a much slower pace than what has occurred the past couple of years.
With that thought in mind, normal cow culling practices are advised. However, cow culling timing should be evaluated considering cull cow prices generally peak in May and June. Profitability in the cow-calf sector is greatly influenced by cow culling decisions in tandem with calf marketing decisions.
ASK ANDREW, TN THINK TANK: A Hickman County producer asked me about my comments related to cattle prices eroding the next several years. Do not let my words bring on anxiety at this time but do heed the warning. Cattle prices are not going to fall into the stratosphere of losses piled upon losses over the next few years, but they are going to slowly decline resulting in smaller profits in the cow-calf business. I warn of this slow erosion because now is the time to start looking at cost structure of the operation so the operation can continue to be profitable beyond the next couple of years.
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 $139.80 1.50; June $128.55 0.93; August $123.20 0.48; Feeder cattle - March $162.40 0.85; April $162.73 1.13; May $162.10 1.00; August $161.35 0.68; March corn closed at $3.66 up $0.04 from Thursday.