Market Highlights: Fed Cattle Markets at a Standstill

FED CATTLE: Fed cattle trade was not established at press. Asking prices on a live basis were $110 to $112 while bids were mainly $106. Asking prices on a dressed basis were $174 plus with bids at $168 to $172.

The 5-area weighted average prices thru Thursday were $108.74 live, up $0.86 from last week and not test dressed. A year ago prices were $100.91 live and $159.06 dressed.

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If one wants to be in a market where a lot is going on but nothing is happening then the fed cattle market is the place to be. Cattle feeders and packers remain at a standstill and both parties have good arguments. Cattle feeders are asking higher prices and the futures market supports cattle feeders asking higher prices.

Alternatively, packers are bidding steady to lower prices compared to a week ago because pushing beef prices higher has been difficult. The packer is making more money than the feedlot at this time which means they could pay a little more, but it is doubtful they are going to willingly pass some of their margin to the cattle feeder as a good will offering. The market will likely see more weeks of this action.

BEEF CUTOUT: At midday Friday, the Choice cutout was $197.39 up $0.14 from Thursday and up $0.67 from last Friday. The Select cutout was $188.15 down $0.63 from Thursday and down $0.81 from last Friday. The Choice Select spread was $9.24 compared to $7.76 a week ago.

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The Choice beef market remains fairly stagnant compared to last week while no one is showing Select beef much support either. Consumers have continued to purchase beef throughout 2017 which remains a strong sign for the cattle complex, but the early fall period is simply a difficult time to push beef prices higher given the quantity of beef being produced.

Beef production tends to be seasonally highest during the early weeks of fall which is a factor of increasing slaughter rate and increasing slaughter weights. There have been several weeks recently when federally inspected cattle slaughter has dared to reach the 650,000 head per week mark compared to the five year average when bumping up against 620,000 head per week was a big deal.

Cattle dressed weights continue to seasonally increase but remain below year ago levels by 10 to 15 pounds. Larger slaughter and relatively lower dressed weights are largely due to increased cow slaughter compared to last year though steer and heifer slaughter are above year ago numbers.

OUTLOOK: If there was ever a strong October feeder cattle market then it is happening right now. Several loads of feeder cattle were traded in Tennessee this week with a fairly wide weight range across those put on the auction block. Narrowing the focus, 800 to 900 pound steers brought $1,210 to $1,320 per head which resulted in an average negative basis just under $6 per hundredweight for 8 to 9 weight steers. Similarly, the value of 725 to 825 pound heifers ranged from $1,050 to $1,150 with an average negative basis near $9.50 per hundredweight.

Prices themselves are important to note given their magnitude, but the strong basis for the time of year is also noteworthy. Looking back at the past five years of data, the basis for 800 to 900 pound steers has averaged in the $12 to $14 range which means the October cash price in Tennessee is generally $12 to $14 lower than October feeder cattle futures. However, based on week one of October, basis is $6 to $8 stronger than the five year average which is worth $48 to $72 more per head on 800 to 900 pound steers.

The five year average basis for 700 to 800 pound heifers in Tennessee is $13 to $21 putting the cash price at a severe discount to the futures market. However, the fairly strong basis this week resulted in higher values for heifers than may have been expected otherwise. Sometimes producers forget about the influence basis can have on the total value of an animal and other times producers are just not aware of basis. Regardless of the situation, it would be wise to familiarize oneself with basis values for different weight cattle.

Now turning to the calf market, calf prices witnessed minimal changed compared to last week based on the Tennessee weekly auction summary. However, the failure of the calf market to follow the strength in the feeder cattle market may be an indication of further seasonal declines in the calf market. Producers should consider this when considering marketing options. One market that continues to take the seasonal hit is the slaughter cow market. They are expected to see further declines.

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ASK ANDREW, TN THINK TANK: The question this week comes from a phone conversation from a producer in East Tennessee. The question was centered on the futures market with much of the discussion focused on the difference between the feeder cattle futures price and the local cash price at the auction market. The difference in the cash price and the futures market is what is known as “basis.” Basis values depend on the animal’s gender, weight, regional location, time of year, and buyer perceptions. Tennessee feeder cattle cash prices are generally lower than feeder cattle futures prices. Feeder cattle futures prices represent an 800 pound steer and should eventually converge with the CME Feeder Cattle index price which is actual cash sales of cattle weighing 700 to 900 pounds in a 12 state region including the Great Plains and West. Historical Tennessee basis estimates can be found at the following website https://ag.tennessee.edu/arec/Documents/publications/Basis2017.pdf.

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 –October $111.03 +0.88; December $116.93 +0.88; February $120.73 +0.95; Feeder cattle –October $153.95 +0.38; November $155.75 +0.90; January $153.70 +1.13; March $151.65 +1.10; December corn closed at $3.50 up $0.01 from Thursday.

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