Market Highlights: Holiday Slowdown for Cattle Price Discovery

Cattle going through an auction ring.
( Todd Johnson, Oklahoma State University Agricultural Communications Services )

FED CATTLE: Fed cattle traded steady compared to last week on a live basis. Prices on a live basis were mainly $122 to $123 while dressed prices were mainly $194 to $195.

The 5-area weighted average prices thru Thursday were $122.84 live, up $2.59 from last week and $194.18 dressed, up $4.18 from a week ago. A year ago prices were $122.65 live and $194.34 dressed.

The finished cattle market finished off 2018 strong and has started 2019 with the same strength. The gains in the fed cattle market during December established strong profit margins for cattle on a cash to cash basis and likely resulted in many of these cattle profiting $100 per head or better.

On the other hand, many feedlot managers likely had cattle hedged resulting in slightly lower margins in some instances. Regardless of the situation, cattle feeders are enjoying the price escalation for finished cattle and the recouping of dollars lost on previous sets of cattle. The questions to be answered now are how long positive margins will last and how will it influence the feeder cattle market as competition develops.

BEEF CUTOUT: At midday Friday, the Choice cutout was $214.85 down $1.64 from Thursday and down $0.58 from last Friday. The Select cutout was $207.82 down $1.56 from Thursday and up $0.68 from last Friday. The Choice Select spread was $7.03 compared to $8.29 a week ago.

The monthly Cold Storage report was released two weeks ago indicating the quantity of meat in cold storage at the end of November. The quantity of beef in cold storage totaled 514.7 million pounds which is the largest quantity of beef in freezers since January 2017.

The expectation is for beef cold storage stocks to begin moderating the first four or five months of 2019. It is not likely beef in cold storage will precipitously decline like it did in 2017 when cold storage stocks declined 126.7 million pounds from January through May, but they are expected to decline.

The quantity of pork in cold storage at the end of November totaled 507.6 million pounds which is in line with previous years. The quantity of pork in freezers will begin to increase following the holiday ham season, but they are expected to stay manageable. Poultry in cold storage declined 324.3 million pounds from August through November, but cold storage levels remain elevated and will likely begin increasing the first half of 2019. This is not a mountain of meat, but it is a mole hill.
 
OUTLOOK: The calf and feeder cattle markets have been slow the past two weeks due to Christmas and the New Year holiday. Many local auction markets were closed the week of Christmas as well as most of the Monday and Tuesday auction markets as 2019 arrived. It is not only the holidays that have thrown a wrench into cattle trade and movement.

Many parts of cattle feeding country have been fighting muddy pens, winter storms, or both which has slowed cattle feeders desire to bring in new groups of feeder cattle. Most feedlot managers are hesitant to bring cattle in to already trying conditions, much less conditions that will negatively influence health, feed performance, and the bottom line. The same can be said for local stocker cattle buyers who have been wading through knee deep mud the past five or six weeks and have had little to no method of getting freshly weaned calves settled.

With that being said, a few markets in Tennessee did hold sales this week with very limited receipts. Compared to two weeks ago, steer and heifer prices were not well tested due to limited receipts while slaughter cow prices were steady to $3 higher and slaughter bull prices were $1 higher. Receipts on steers and heifers are expected to rebound in the coming weeks as auction markets begin their normal schedules and as fields begin to dry.

Feeder cattle futures on the other hand have been creating a chart pattern that mimics a roller coaster. Trade during December for the January feeder cattle contract had a $7 per hundredweight trading range, but the contract high during December was still $8 lower than the contract high set in early October. Deferred contracts have not traded in as wide of a range as the nearby contract, but they still have similar patterns.

The feeder cattle market has found itself in a precarious situation due to the holiday marketing disruption, unfavorable weather conditions for moving cattle, and a potential loss of information from the partial government shutdown. Everything will shake out with time, but not every producer has that much time.

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ASK ANDREW, TN THINK TANK: A couple of questions relating to the local cattle market and the broader international market were asked this week. Those questions concerned the implications of the government shutdown and the ongoing trade disputes and negotiations. In short, the trade disputes and negotiations will eventually be settled and trade flows will adjust so supply meets demand. The government shutdown is another story. Producers, industry personnel, and traders use information disseminated by USDA to determine prices of commodities and for longer term outlook decisions. Some USDA entities such as the Agricultural Marketing Service continue to produce price reports as they are considered necessary. However, the entities that publish the annual Cattle Inventory report and the World Agricultural Supply and Demand Estimates are out of commission. These reports provide information for longer term decision making and impact how markets trade. If the reports are delayed, it could impact markets in the short run.

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 $121.93 -1.30; April $124.00 -1.40; June $115.55 -1.23; Feeder cattle –January $144.90 -1.63; March $142.83 -1.63; April $143.65 -1.58; May $144.18 -1.53; March corn closed at $3.83 up $0.03 from Thursday.

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