By: Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle trade was not established at press. Live cattle bids were $128 but about $6 to $7 still stood between bid and ask prices. The 5-area weighted average prices thru Thursday were $126.62 live, down $6.90 from last week and $202.00 dressed, down $7.57 from a week ago. A year ago prices were $159.51 live and $256.03 dressed.
Neither logic nor common sense can explain live cattle futures making a positive movement while the beef cutout price is declining. The cold and nasty weather conditions do support live cattle prices as cattle performance tends to slow with cold and wet weather. Alternatively, beef cutout prices tend to falter when large parts of the U.S. population are adversely impacted by weather.
This is the simple way to explain what is happening with the two markets going in opposite directions. However, the two markets generally move in the same direction as both packer and feeder work to improve margins. The market has not known what to do for several months now and no change to that situation seems to be in sight.
BEEF CUTOUT: At midday Friday, the Choice cutout was $225.43 down $2.24 from Thursday and down $7.22 from last Friday. The Select cutout was $220.98 down $2.10 from Thursday and down $6.65 from last Friday. The Choice Select spread was $4.45 compared to $5.02 a week ago.
The winter storm that is hitting the east coast will most likely result in a slowdown in beef movement which will result in lower wholesale beef prices. The eastern part of the country is a primary beef eating region and this storm could impact the market for as many as two to three weeks depending on the ability of consumers to get to the grocery store and restaurants.
Additionally, the wintry precipitation will make it difficult for beef and other goods to be trucked into the densely populated areas such as the Northeast and the Atlantic Coast. It is not as if winter precipitation is a new phenomenon for the beef industry as it has impacted wholesale beef prices many times. However, the more people impacted by adverse weather then the larger the negative impact to the beef cutout prices.
Regardless of the weather situation, beef cutout prices are expected to falter the next few weeks as middle meat prices struggle through slower demand months. End meats and grinding products are expected to carry the cutout the next couple of months.
OUTLOOK: Feeder cattle prices were lower this week for both steers and heifers compared to Tennessee auctions one week ago. The observed trends on Tennessee auctions are based on limited receipts which mean the trends provide a limited amount of information. Receipts were limited this week due to several days of wintry precipitation in different parts of the state.
The weather moving through Friday and Saturday may have an impact on cattle receipts through the first of next week as producers find it difficult to navigate roads the first few days and then they may not want to get cattle out of wet and muddy fields. The rain and cold weather will definitely be tough on cattle as calves will see limited growth during those days. However, it may be a good thing that the weather is delaying calf marketing as feeder cattle markets are unsure of where prices should settle.
It is actually amazing that cattle buyers have any clue what to pay for calves and feeder cattle given the volatility in the futures market. The roller coaster ride on the futures market continues to be anything but fun for those trying to manage price risk or even at a minimum trying to price cattle in the daily market. There is very little indication from outside markets that would indicate an end to the volatility in the cattle markets. In reality, there is very little information that supports a volatile cattle market. However, volatility has been something cattle producers have been battling the past 24 to 30 months.
This volatility has made it nearly impossible for cattle buyers and sellers to hedge purchase and sell price. The volatility may keep many cattle buyers on the sidelines or at a minimum result in fewer cattle purchased. This is not to say someone will not purchase the cattle, but it will cause buyers to bid lower especially if big losses have been experienced recently.
Alternatively, slaughter cow and bull prices strengthened this week. The price of lean grinding meat has started to see some support and has resulted in slaughter cow prices being supported. This is likely to continue the next several months.
The January cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of January 1, 2016 totaled 10.57 million head, 0.5% lower than a year ago, with the pre-report estimate average expecting a decrease of 1.2%. December placements in feedlots totaled 1.53 million head, down 0.8% from a year ago with the pre-report estimate average expecting placements down 5.1%. December marketing’s totaled 1.67 million head up 1.1% from 2014 while the pre-report estimate expectation was up 1.9%. Placements on feed by weight: under 600 pounds down 14.8%, 600 to 699 pounds down 2.7%, and 700 pounds and over up 8.6%.
ASK ANDREW, TN THINK TANK: A question was brought forth this week concerning retained ownership of currently owned feeder cattle compared to marketing them as feeder cattle in the near term. The answer is easier if the producer has a good idea of how the cattle will grade based on carcass quality. If the cattle are expected to grade Choice or better then retained ownership may be beneficial. Alternatively, if cattle are not expected to grade well then marketing feeder is likely the best option. If the producer has no idea how the cattle may grade then there is very little information to base such a decision. However, producers may want to feed a few cattle at a custom feedlot and get information back on production and carcass characteristics. The Tennessee Beef Evaluation is a program that can assist producers with feeding cattle and collecting data.
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 –February $132.90 2.65; April $133.85 2.68; June $124.18 1.28; Feeder cattle - January $160.30 1.63; March $159.30 5.08; April $159.15 4.70; May $158.93 4.70; March corn closed at $3.70 up $0.03 from Thursday.