Market Highlights: Cattle Prices on Decline, Bottom Not Reached Yet

Cattle at the feed bunk in a feedlot.
( Wyatt Bechtel )

FED CATTLE: Fed cattle traded $2 lower compared to a week ago on a live basis. Prices on a live basis were mainly $125 to $126 while dressed prices were mainly $201 to $202.

The 5-area weighted average prices thru Thursday were $125.94 live, down $2.00 from last week and $201.88 dressed, down $3.93 from a week ago. A year ago prices were $128.95 live and $212.97 dressed.

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One hint of negative sentiment was in the finished cattle market one week ago as cash prices fell below year ago prices for the first time since September. A little more negative sentiment was in the market this week as finished cattle prices softened and cattle feeding margins tightened. Though finished cattle prices are softer, the bigger story is the strong basis at which live cattle are trading.

Based on this week’s market, live cattle traded $6 to $7 higher than the April futures contract. The expectation is for the cash price and futures price to converge as the market moves toward the expiration of the April contract. With that being said, serious price movement will have to occur from futures, cash, or both to see convergence.

BEEF CUTOUT: At midday Friday, the Choice cutout was $224.12 down $1.09 from Thursday and down $1.60 from last Friday. The Select cutout was $217.73 down $0.29 from Thursday and down $0.18 from last Friday. The Choice Select spread was $6.39 compared to $8.55 a week ago.

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It would appear packers are attempting to slow slaughter rates with increased profitability in mind. The first thought by packers is to reduce the quantity of beef available which should support wholesale beef prices.

The second thought is to defer purchasing cattle into future months which is front of mind because of lower live cattle prices on deferred futures contracts.

Neither of these strategies will be beneficial as a long term solution to increasing margins. In fact, it could be detrimental to the industry as it changes when the supply is available and will increase supply with heavier cattle.

One aspect of the beef market that has added value is the percentage of cattle grading Choice and Prime. For the week ending March 10th, 8.4 percent of cattle graded Prime resulting in the fifth consecutive week of 8 percent or better grading Prime.

Similarly, the percent of cattle grading Choice has stayed in the 72 to 73 percent range during those five weeks. Higher grading cattle allow more beef to be moved into higher valued food service outlets and thus return more value to the industry.

OUTLOOK: Calf and feeder cattle markets were softer this week compared to last week. Based on Tennessee weekly auction average prices, steer prices were $2 to $6 lower than last week while heifer prices were $1 to $5 lower than a week ago. Slaughter cow prices did not fare much better with prices $3 to $4 lower than the prior week. Declining cash prices are to be expected considering the losses in feeder cattle futures contracts that have ranged between $11 and $14 since February 20th on most contracts.

The price decline has resulted in prices falling below existing support levels which makes it difficult to know where the bottom is in the market. Though a cash price decline should be expected given losses in the futures market, lightweight calf prices are beginning to move lower when the seasonal tendency would be for a few more weeks of stronger prices.

This could mean the spring price peak for lightweight calves has already been witnessed and softness can be expected through the remainder of the spring months as well as the summer and fall months. If the apex on calf prices has been reached, there will likely be a long arduous path to the fall lows.

For producers with calves that need to be weaned, when is the right time to market calves? The sooner the better is probably the correct answer if the producer does not want to wean the calves and add weight. However, with calf prices on the decline, there could be an opportunity to add weight to these calves with hopes of a stronger feeder cattle market moving through the summer months.

From a stocker operator standpoint, it might be wise to hold off on calf purchases another couple of weeks as prices could certainly decline further. Producers should always consider their particular situation when utilizing price forecasts and price expectations. The key to the cattle business is not to hit a homerun every year, but to string together several base hits that will result in profits each year.

The March cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of March 1, 2018 totaled 11.72 million head, up 8.8% compared to a year ago, with the pre-report estimate average expecting an increase of 8.1%. February placements in feedlots totaled 1.82 million head, up 7.3% from a year ago with the pre-report estimate average expecting placements up 4.5%. February marketing’s totaled 1.68 million head up 1.6% from 2017 with pre-report estimates expecting marketings up 1.4%. Placements on feed by weight: under 700 pounds up 2.3%, 700 to 899 pounds up 8.1%, and 900 pounds and over up 22.0%.

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ASK ANDREW, TN THINK TANK: A question was posed this week in relation to the cost of carrying a cow through an entire year. Based on the 2018 University of Tennessee cow-calf enterprise budget, it will cost a producer $964 per head to carry a cow for an entire year. Many readers will say that number is too high, but that value consists of $622 of variable expenses such as feed, pasture, hay, animal health, labor, and marketing and $342 of fixed expenses to cover buildings, equipment, taxes, and other fixed costs. There are sure to be producers with lower costs but there are also producers with higher costs than the one stated. The fixed cost category is where many producers fail to account for the full cost. Producers with a low overhead cost are likely the lowest cost producers and also the producers that are most likely to be profitable. It is also important to remember that economies of size play a factor in the annual cost per head.

Please send questions and comments to [email protected] 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 $116.05 -2.10; June $106.20 -2.20; August $104.95 -1.43; Feeder cattle –March $135.70 -1.83; April $136.10 -1.93; May $137.30 -1.23; August $142.30 -1.95; May corn closed at $3.77 up $0.01 from Thursday.

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