Market Highlights: Drought Creeps into Cattle Country

The drought areas include the Great Plains and much of the Southeast with the hardest hit parts being in the Oklahoma and Texas panhandles. ( Wyatt Bechtel )

FED CATTLE: Fed cattle trade was not established at press with bid prices on a live basis at $118 while asking prices on a live basis were $125.

The 5-area weighted average prices thru Thursday were $120.61 live, up $0.54 from last week and $193.00 dressed, up $1.08 from a week ago. A year ago prices were $121.89 live and $194.82 dressed.

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Fed cattle trade was slow to be established this week as packers and feedlots were separated by as much as $7 on a live basis. This price separation was largely due to packers holding on to prices from last week’s trade and early week futures market prices. However, cattle feeders were basing ask prices on late week futures which were $3.80 higher than the close on Tuesday and more than $4.50 higher than the close last Friday.

Given the futures close for the week, cattle feeders hold a little leverage over packers in the short term. Packers that are not short bought will likely pass on offerings this week and give it another shot next week. Cattle feeder’s leverage should last as long as the futures price holds.

BEEF CUTOUT: At midday Friday, the Choice cutout was $205.11 down $0.58 from Thursday and down $3.56 from last Friday. The Select cutout was $200.39 down $0.48 from Thursday and down $1.89 from last Friday. The Choice Select spread was $4.72 compared to $6.39 a week ago.

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Disposable income is a key factor in beef demand. Increases in disposable income generally result in consumers purchasing more beef. Many consumers move to beef from poultry and pork products while others trade lower valued beef products for higher valued products when disposable income increases. Alternatively, declines in disposable income generally result in the consumers moving the opposite direction. There are two reasons why this discussion is important right now.

First is energy cost. February crude oil futures are trading near $63 per barrel which is nearly a $20 per barrel increase since June 2017. Higher crude oil prices have pushed fuel prices higher which eats into disposable income. From the natural gas and electricity standpoint, it is increased consumption that is eating into disposable income due to cold temperatures.

Alternatively, the new tax code reduces Federal income tax withholdings for many consumers which will result in an increase in disposable income starting in February. Thus, it all may even out in the end or it could influence the beef market.

OUTLOOK: The cold temperatures and snow put a damper on calf and feeder cattle marketings this week. Based on limited receipts at Tennessee weekly auction markets, steers weighing less than 650 pounds were $1 to $5 higher than last week while steers 650 pounds and heavier were unevenly steady. Heifers weighing less than 600 pounds were steady to $2 lower compared to last week while heifers weigh 600 pounds and heavier were $1 to $5 higher than last week’s weekly auction average. Slaughter cow prices have already started to seasonally strengthen as prices were $1 to $3 higher compared to last week.

It has been extremely difficult to get a handle on Tennessee auction market prices since the beginning of the year due to the holidays, cold temperatures, and winter precipitation. However, there is a good chance calf and feeder cattle marketings will pick up this coming week as temperatures are expected to escalate and only one day of precipitation is predicted in the next seven days. At this time, there is no reason to expect an increase or decrease in calf and feeder cattle prices.

One piece of information to keep an eye on is the drought monitor. Nearly 61 percent of the country is experiencing abnormal dryness to extreme drought which is 18 percentage points higher than the end of November. The drought areas include the Great Plains and much of the Southeast with the hardest hit parts being in the Oklahoma and Texas panhandles. These drought conditions will continue to weigh on wheat grazing country which is not supportive of calf prices. However, the poor grazing conditions in this area have been persistent through much of the late fall and early winter months and are largely priced into today’s market.

The market may have to make it through the first quarter of 2018 before significant price improvement occurs. However, producers should not be expecting a repeat of 2017 where prices strengthened from January through June and then held steady for much of the second half of the year. The market continues to slowly seek the historical seasonal price trend and decision makers should consider this.

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ASK ANDREW, TN THINK TANK: A question was received this week concerning the 2018 cow-calf budget developed for Tennessee cattle producers. Based on the question received, it was evident the person was not aware of all the budget resources available. Thus, it may be prudent to share this with producers and others who may find the University of Tennessee Extension budgets useful. Enterprise budgets for row crop, cow-calf, and stocker production can be found on the following website https://ag.tennessee.edu/arec/Pages/budgets.aspx by selecting the appropriate thumbnail. As it relates to cattle budgets, budgets can be downloaded in PDF format or Excel format. The Excel file allows the user to customize the budget for his or her specific operation or use. The flexibility provided by the Excel version makes this tool appropriate for use by operations outside of Tennessee also.

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 –February $121.90 -0.05; April $122.73 -0.75; June $114.73 -0.63; Feeder cattle –January $147.95 -1.23; March $145.60 -1.58; April $146.08 -1.30; May $145.80 -1.15; March corn closed at $3.53 down $0.01 from Thursday.

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