Market Highlights: Feeder Cattle Prices Finding Footing

FED CATTLE: Fed cattle trade was not well established at press. Asking prices on a live basis were mainly $115 while bid prices were mainly $108 to $110.

The 5-area weighted average prices thru Thursday were $110.07 live, down $0.03 from last week and $175.43 dressed, down $0.66 from a week ago. A year ago prices were $117.30 live and $187.35 dressed.

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Market watchers are watching the same dog and pony show this week as they have the past several weeks which means packers and feedlots are slow to trade any cattle. Trade is sure to occur but most of the action has been taking place late on Friday.

There is certainly a power struggle between the two parties and the traditional leverage packers have over cattle feeders this time of year does not appear to exist at this time. The best bet is that summer lows for finished cattle have been established, but cattle feeders are determined to escalate prices much earlier than is typical.

No matter when trade occurs, the key for both sides will be keeping cattle current and not overfeeding.

BEEF CUTOUT: At midday Friday, the Choice cutout was $204.55 up $0.75 from Thursday and down $0.56 from last Friday. The Select cutout was $197.96 up $0.86 from Thursday and down $0.61 from last Friday. The Choice Select spread was $6.59 compared to $6.54 a week ago.

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There has been considerable media coverage of the latest Cold Storage report from USDA, but this information can be misleading if not put in context. Beef in cold storage at the end of June totaled 449 million pounds which is 33 million more pounds than the same time last year but in line with expectations for June. To put this quantity in perspective, weekly beef production in 2018 has averaged 501 million pounds which means there is less than one week’s worth of beef production in cold storage.

Pork in cold storage at the end of June totaled 560 million pounds which is the same as June 2017. Weekly pork production in 2018 has averaged 490 million pounds which means there is slightly more than a week’s worth of pork production in cold storage.

The concern is poultry where June cold storage totaled 1.45 billion pounds, up 81 million pounds from a year ago and 249 million pounds higher than the five year average for June. Weekly chicken and turkey production has averaged 1.12 billion pounds in 2018.

OUTLOOK: There were at least 59 full loads (50,000 pounds) of steers and 26 full loads of heifers that were marketed through dedicated video sales, alliance sales, and weekly auction markets this week in Tennessee. This count does not include several partial loads with 25,000 to 40,000 pounds in each lot which would likely put the total number of head represented over 6,000 head.

This is not a large number of cattle when compared to sales in the Western United States, but it is a big number for Tennessee cattle marketing. The majority of the steers were marketed weighing between 675 and 925 pounds while the majority of the heifers weighed between 675 and 885 pounds. Generally speaking, steer values ranged from $1,000 to $1,300 per head with fairly strong demand for all weight classes represented. A similar story holds for the heifers as per head values generally ranged from $900 to $1,100 with strong demand for feedlot heifers.

Feeder cattle prices have found some footing the past couple of weeks with prices slightly higher this week compared to last week. What may be more impressive is that prices this week are nearly identical to the same week one year ago resulting in positive returns for most producers.

No one knows for sure which way the market will move going forward, but the expectation is for lower prices to consume the market due to increased production. However, market analysts have consistently undervalued beef demand which has supported cattle prices all year.

One aspect of the market that has appeared to slow down is the purchase of open heifers for beef cow replacement. There have been several feeder cattle sales in which the auction price made it seem apparent that the heifers were destined to be bred because they were valued tremendously higher than same weight feeder heifers. However, many of the high quality open heifers in today’s market are only bringing a moderate premium compared to average quality heifers destined for the feedlot.

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ASK ANDREW, TN THINK TANK: A question was asked this week concerning the drawbacks of marketing cattle using private treaty. Private treaty marketing can be beneficial in that transaction costs are reduced including commission fees and transportation. However, a seller must have a good understanding of what the cattle are truly worth and often have to understand price slides and shrink. If one does not know the true value of cattle then private treaty may not be a good marketing option. Additionally, private treaty sales could result in receiving a “bad check” or delayed payment whereas marketing cattle through a bonded marketing agency will result in a prompt payment and a check with actual value. Another issue that may arise with private treaty marketing is agreeing to sale cattle for a certain price and then prices declining before the cattle are picked up and paid for which could result in the buyer walking away from the deal and the cattle producer is stuck marketing cattle on a lower 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 $110.68 +2.08; October $112.00 +2.05; December $115.50 +1.68; Feeder cattle –August $152.85 +1.65; September $153.03 +1.68; October $153.03 +1.43; November $153.48 +1.38; September corn closed at $3.70 up $0.03 from Thursday.

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