FED CATTLE: Fed cattle traded steady to $1 higher compared to a week ago on a live basis. Prices on a live basis were mainly $127 to $128 while dressed prices were mainly $205 to $206.
The 5-area weighted average prices thru Thursday were $127.94 live, up $1.18 from last week and $205.81 dressed, up $1.97 from a week ago. A year ago prices were $128.75 live and $208.01 dressed.
Despite all the rumblings of the high cattle on feed numbers and the soon to be glut of beef on the market, finished cattle prices continue to find support. Sure, this is the first week in which finished cattle prices dipped below year ago prices from the same week since mid-September of last year, but finished cattle have consistently traded in the $125 to $130 price range for eight consecutive weeks.
It is difficult to imagine at this juncture that fed cattle prices can make a run like they did one year ago into the May and June timeframe and trade over $130 for nine consecutive weeks, and such an occurrence would be surprising. However, analysts have consistently underestimated the strength of beef demand.
BEEF CUTOUT: At midday Friday, the Choice cutout was $225.72 up $0.73 from Thursday and up $2.96 from last Friday. The Select cutout was $217.91 up $0.86 from Thursday and down $0.74 from last Friday. The Choice Select spread was $8.55 compared to $6.71 a week ago.
Wholesale beef prices have continued to push higher though the push is a little earlier than normal. Choice and Select cutouts have gained $15 and $12 respectively in the past four weeks following flat trade the first month and a half of 2018.
Higher cutout prices are being driven by the rib and loin primal which is to be expected as the market moves closer to grilling season. Rib primal values last week were nearly $44 per hundredweight higher than the same week one year ago while loin primal values were $9 softer over the same time period.
What is a little more surprising is the strength in the chuck and brisket. The chuck primal was $15 higher than the same week last year while the brisket was $54 per hundredweight higher. The increase in brisket value represents a 33 percent increase in brisket value which definitely provides support.
What is driving support for chuck and brisket at this time? Could it be the announcement by McDonalds to serve only fresh beef in its quarter pound burgers? More information will have to be revealed before there is a clear answer.
OUTLOOK: Losses of $9 to $12 on spring and summer feeder cattle futures contracts in the past four weeks has put a damper on many producers’ attitudes. Fall and winter contracts have only declined $7 over the same time period, but the sentiment would be that they have time to fall further.
Looking at support, the May contract is only a couple of dollars higher than a major support point just above $139. Does this support mean the May feeder cattle contract will not decline further or push lower than the support price? The simple answer is no, but it will take a lot of negative sentiment across the industry for prices to continue pushing lower than the established support.
Though feeder cattle futures s have softened the past four weeks which has placed weakness in the cash feeder cattle market, the same cannot be said for the calf market. Warm temperatures, significant rainfall, and a greening of pastures locally have many summer stocker operations in heated competition to secure calves for spring and summer grazing. The prices being paid today for calves will be difficult to turn into positive margins unless the feeder cattle market reverses course and begins strengthening.
Based on Tennessee weekly auction averages, steer prices were $3 to $5 lower compared to one week ago while heifer prices were steady to $2 lower compared to last week. Similarly, slaughter cow prices were steady to $2 lower than last week.
Readers should not let the trends this week fool them as lightweight calf prices are extremely strong. Steers weighing between 450 and 650 pounds averaged $825 to $950 per head which should be profitable for many cow-calf producers. The market has been very seasonable this year and is another sign of the market’s slow move to seasonal tendencies. Producers with calves ready to be marketed should probably do so sooner rather than later as prices will soften as the market moves through the spring and summer months.
ASK ANDREW, TN THINK TANK: A couple of weeks ago, Dean Foods announced they were discontinuing milk contracts with 100 or so dairies which included a dozen or so operations in Tennessee. Essentially, the dairies impacted have until the end of May to find a new outlet for their milk or they will be forced to exit the industry due to having no method to market milk. This has brought several questions across my email and through personal communication. From the beef sector side, this could have an implication on beef markets if all of these dairy operations are forced to sell out. One would imagine these dairy operations would be able to market heifers and some of the young fresh cows. However, there would likely also be a short-term glut of slaughter cows in the region. From another standpoint, some of these dairies might consider beef cattle production as an alternative. The resources these dairies have could lend itself to backgrounding feeder cattle or a confined beef cattle operation.
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 $121.25 -0.60; June $111.75 -0.55; August $109.13 -0.68; Feeder cattle –March $139.98 -0.65; April $140.20 -0.63; May $140.95 -0.65; August $146.25 -0.25; March corn closed at $3.83 down $0.04 from Thursday.