Market Highlights: Beef Demand Key for Cattle Markets

FED CATTLE: Fed cattle traded $2 to $3 lower than last week on a live basis. Prices on a live basis were mainly $110 to $111 while dressed prices were mainly $175 to $176.

The 5-area weighted average prices thru Thursday were $111.11 live, up $1.04 from last week and $175.89 dressed, up $0.46 from a week ago. A year ago prices were $115.17 live and $183.89 dressed.

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Packers and feedlots did a little business on Thursday which would be considered an oddity considering all the late Friday trade the past month. Regardless of when trade occurs, feedlot managers were not able to keep prices elevated as in previous weeks due to softness that has come into live cattle futures.

The August contract is $2 to $3 lower than last Friday, but there is some optimism in the market as the December contract is trading over $113 and the February 2019 contract is over $116. Both of these contracts were trading a couple dollars higher last week, but there is plenty of time for them to recover.

The key to the market will continue to be beef demand as expected supply will change very little.

BEEF CUTOUT: At midday Friday, the Choice cutout was $206.30 up $0.24 from Thursday and up $1.75 from last Friday. The Select cutout was $198.37 up $0.28 from Thursday and up $0.41 from last Friday. The Choice Select spread was $7.93 compared to $6.59 a week ago.

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The Economic Research Service released its monthly retail meat values for July. The all fresh beef retail value for July was $5.76 per pound which is slightly lower than the previous month and $0.07 lower than July 2017. Similarly, the retail value for Choice beef for July increased $0.04 from June to $6.02 per pound which is $0.08 lower than July a year ago.

There are always questions from cattle producers concerning the retail value of beef relative to the value of the calves and feeder cattle they are currently marketing. The first thing to understand is that retail prices are generally lagged compared to cattle prices which means they do not always move in the same direction.

Retail meat prices are generally slow to increase following higher livestock and wholesale meat prices and they are slower to decrease when wholesale and livestock prices decline. The slower reaction in retail prices helps guard against the consumer experiencing “sticker shock.”

Additionally, retailers are working off a margin and they are going to stretch meat prices to garner an acceptable margin.

OUTLOOK: Demand for feeder cattle and calves remained strong this week with several active buyers. Many cattle producers in Tennessee and across the nation will soon be setting wheels under spring born calves as the fall marketing run will be in full swing from September through November which means the market will be flush with cattle.

Despite strong demand, it may be difficult for calf and feeder cattle prices to maintain the current level as the seasonally strong supply makes its way to town. This comment is made due to the seasonal tendency of calf prices to decline during the fall months and the expected larger calf crop compared to a year ago.

Contrary to this line of thought, the fall 2017 marketing time period had strong calf and feeder cattle marketings and prices remained extremely strong throughout the entire period. Despite not having seasonal price movement in the calf market in 2017, producers should not be betting the farm on the same price action in 2018.

Most of the fundamental information including fed cattle prices, calf numbers, reduced forage availability in many areas, and traditional marketing patterns are suggesting lower calf prices this fall.

One aspect of the market that is supportive of prices is the expectation for a strong corn yield which should keep feed prices low.

Another aspect of the market place that will pressure calf prices lower is the losses that continue to mount in the feedlot. Cattle feeders experienced strong margins in 2017 and early in 2018 which resulted in cattle feeders being willing buyers, but now that they continue to run through the reserves, they may slow down on bidding up prices.

Another market many cattle producers should be thinking about is the slaughter cow market. Many producers will be marketing slaughter cows this fall and the market price is already deteriorating. If one does not want to carry them through the winter then market them as soon as possible.

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ASK ANDREW, TN THINK TANK: At a meeting this week, there was a discussion related to beef supply and demand. One of the questions during this discussion was related to the industry reducing beef supply in the short run to support cattle prices. The market naturally manages supply through prices received. In other words, when cattle prices get too low then producers across the country begin herd contraction and when cattle prices are high, producers expand cattle production. In order to manage total industry beef production, it would require government intervention which is a terrible option. Even if the industry as a whole decided to reduce supply, how would the industry do that? Would the industry contract to a smaller cow herd, shrink the physical size of the cow, or not fully finish the feeder cattle that are currently being produced? It is doubtful any cattle producer is going to make the decision to produce fewer cattle because the industry says so. Likewise, changing the physical size of a cow takes time which means it is unlikely and under finishing cattle results in less Choice and Prime beef. The solution: it is probably best if the market price drives the free market!

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 –August $108.25 +0.00; October $109.25 +0.20; December $113.10 +0.13; Feeder cattle –August $149.90 +0.55; September $149.53 +0.50; October $149.48 +0.28; November $149.93 +0.18; September corn closed at $3.58 down $0.11 from Thursday.

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