Market Highlights: No Cattle Price Advantage for Feedlots or Packers

FED CATTLE: Fed cattle trade was not well established at press. Asking prices were $126 to $127 on a live basis while bid prices were mainly $122. 

The 5-area weighted average prices thru Thursday were $124.74 live, up $0.72 from last week and $199.20 dressed, up $0.68 from a week ago. A year ago prices were $128.29 live and $202.00 dressed.

Finished cattle trade has been following a similar pattern the past several weeks. That pattern is to delay trade until as late as possible in the week and then price cattle in the narrow trading range that has been consistent the past several weeks. Current finished cattle prices are neither favoring the direction of packers or feedlots which means both parties can be content or they are both dissatisfied because they want a larger share of the margin. It would seem that upside potential in the finished cattle market is still possible moving through the next eight to ten weeks, but nothing is guaranteed. If boxed beef prices gain momentum then finished cattle prices are likely to do the same.

BEEF CUTOUT: At midday Friday, the Choice cutout was $216.94 up $0.87 from Thursday and up $1.23 from last Friday. The Select cutout was $211.04 up $1.09 from Thursday and up $0.46 from last Friday. The Choice Select spread was $5.44 compared to $4.67 a week ago.

The Choice cutout price has been supported through the first month and a half of 2019 because middle meat (steak) demand has remained relatively strong compared to end meats or roast type cuts. The winter months are when end meats experience their strongest demand and few consumers place much price differential between quality grades of end meats. This is why the Choice Select spread tends to narrow during the winter months. The beef cutout value for a quality grade is a weighted average composite price calculated using prices of individual cuts that come from the seven primal cuts in a beef carcass. The seven primal cuts composing a beef carcass include the chuck, brisket, plate, flank, round, rib and loin. When comparing primal cut prices across different quality grades (Prime, Branded, Choice, and Select), there is very little difference in prices for rounds, plates, and flanks while modest price differences exist for chucks and briskets. Alternatively, significant price differences exist across quality grade for loins and ribs which is where higher quality is demanded.
 
OUTLOOK: Based on Tennessee weekly auction market averages, steer and heifer prices were unevenly steady compared to last week while slaughter cow prices were $1 to $2 higher and slaughter bull prices were $2 higher. The big story in cattle markets the past few weeks has been the increase in slaughter cow prices. Cow-calf producers have been concerned about low slaughter cow prices since the middle of October when prices in Tennessee dipped into the mid $40s and proceeded to the low $40 level for November and December. In the past four weeks, Tennessee slaughter cow prices have increased $10 per hundredweight and are now at their highest level since the first week of August. The $10 per hundredweight price increase the past month is essentially $120 to $140 more per head. The seasonal tendency would say there is still room for slaughter cow prices to increase which means they could reach $60 per hundredweight, resulting in $60 to $70 more per head than the current week’s value.

Producers should not concern themselves with hitting the top of the market but rather take advantage of what is expected to be a favorable marketing window for slaughter cows the next three to four months. Similar to slaughter cows, the lightweight calf market has started to strengthen. With the expectation of bountiful forage in the spring due to favorable moisture levels, stocker producers are providing support to the calf market and this is expected to continue through late March and early April. Though calf prices have been strong, the feeder cattle market is severely undervalued compared to other classes of cattle. The reasoning for seemingly undervalued feeder cattle may be due to muddy pens and unfavorable feeding conditions, but it is also likely linked to cattle feeders lack of confidence that the finished cattle market will remain strong through the second and third quarters of 2019.

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ASK ANDREW, TN THINK TANK: A question was asked this week concerning retaining a heifer that lost her calf at birth or shortly after birth. It should be made clear that this is a different question compared to a heifer that did not breed or aborted the fetus. Dr. Chris Boyer is leading research at the University of Tennessee determining the net present value of a female that does not produce a marketable calf in year 1 and in year 2. The preliminary results show that a female missing two calves has a negative net present value while a female that only misses one calf will still have potential of a positive net present value. The difference between a female that was checked open at time of pregnancy detection and a female that loses a calf at birth is the resources that go into that female between those two periods which will likely be five to eight months of resources. Personal conviction says to cull all open animals at pregnancy detection. The inclination on animals that lose a calf at birth is to market them as well, but animal age, production history and cost of developing another female should be considered when making this decision.

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 $126.63 +0.50; April $127.18 -0.20; June $118.08 -0.20; Feeder cattle –March $142.60 -1.48; April $145.23 -1.28; May $146.58 -1.10; August $150.45 -0.78; March corn closed at $3.75 unchanged from Thursday.

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