Market Highlights: Packers and Feeders Don't "Meet in the Middle"

FED CATTLE: Fed cattle trade was not well established at press. Asking prices on a live basis were mainly $110 to $111 with bids from $104 to $106.

The 5-area weighted average prices thru Thursday were $107.89 live, up $0.72 from last week and $169.57 dressed, up $0.26 from a week ago. A year ago prices were $103.14 live and $163.00 dressed.

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Beef packers and cattle feeders have either never heard the song “Meet in the Middle” by Diamond Rio or they do not believe it makes good business sense. Meeting in the middle may or may not make business sense, but waiting until the stroke of midnight to do business could shorten one’s life expectancy or at the very least result in some tired people on Saturday.

At the same time packers and feeders spar over cash prices, futures traders are pricing in greater than a $4 price increase for live cattle between October and December and another $4 from December to February.

The late summer market has held up very well and there is only two more weeks of summer based on the calendar. Live cattle futures are calling for higher prices this fall and winter.

BEEF CUTOUT: At midday Friday, the Choice cutout was $206.98 down $1.77 from Thursday and down $3.02 from last Friday. The Select cutout was $197.86 up $0.03 from Thursday and down $2.79 from last Friday. The Choice Select spread was $9.12 compared to $9.35 a week ago.

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Using monthly beef and veal import and export data provided by USDA-ERS, imports the first seven months of 2018 are up a half percent compared to 2017 and total 1.82 billion pounds. If this rate increase persists throughout the year then total beef and veal imports will exceed 3 billion pounds.

Canada and New Zealand lead the way as import sources in 2018 and account for 49 percent of beef and veal imports through July.

Imports from Australia have moderated due to severe drought in major cattle producing regions, but imports from Australia have made up 21 percent of total imports.

Mexico is the fourth largest beef and veal import source at 16 percent total volume but imports year to date are 15 percent lower than the same time period in 2017.

On the export side, beef and veal exports the first seven months of the year total 1.81 billion pounds which is a 15 percent increase for the same months in 2017.

If exports continue at this same pace then they too will exceed 3 billion pounds. Primary destinations remain Japan, South Korea, Mexico, Canada, Hong Kong, and Taiwan.

OUTLOOK: Based on Tennessee weekly auction price averages, steers and heifers traded steady to $3 lower compared to last week. Similarly, slaughter cow prices were $2 lower this week compared to last week while slaughter bull prices were $1 to $2 lower than a week ago. The 500 to 600 pound steer market in Tennessee has been trading in a range from $149 to $153 since the middle of May, and this week it is back to the bottom of that range.

If the past couple of weeks are any indication of where the market is going then it is likely the seasonal price decline has started. At the same time prices are declining, cow-calf producers will begin sending spring born calves to town at a rapid pace which further depresses prices. Similar to calf prices, slaughter cow prices continue to trade in a steady range, but they are sitting on the bottom of that range.

Alternatively, feeder cattle futures have displayed a little resilience the past couple of weeks and found footing to push prices higher. What does all of this mean? It simply means the cash market is behaving in the seasonal manner that many expected it would despite the futures market continuing to spew volatility.

At the same time, the futures market is telling industry participants that prices are not going to decline to the degree many thought possible a few months earlier. Market volatility is not good or bad in and of itself, but it can be used to take advantage of strong selling and purchasing opportunities.

Producers looking to market cattle this fall may still have a small window to take advantage of a selling opportunity, but the window is closing rapidly. The opportunities that should be considered this fall are spring purchasing opportunities.

There will be several stocker producers looking to purchase cattle in the spring months and the futures market may offer an opportunity the next three months to get these cattle purchased at a relatively low price. Producers should keep their eyes attuned to market movements and then take action when a favorable purchase price presents itself.

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ASK ANDREW, TN THINK TANK: A question concerning dry hay quality following long-term storage was asked this week. Unfortunately, I was not able to locate any research that evaluated hay quality following five to ten years of storage which means everything here is opinion or what is thought to be common sense. Hay that is stored and protected from weather elements will maintain its quality better than hay exposed to Mother Nature. Similarly, dry hay that was baled and stored at the correct moisture will maintain better quality than hay baled and stored at too high of a moisture content. Without having any research to back up any statements, it is assumed dry hay stored out of the weather will maintain its nutrient value for several years. It would seem some degradation of hay would occur but should be fairly marginal. This may be an area that needs a little research to provide a better answer.

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 $109.95 +1.05; December $114.43 +0.70; February $118.25 +0.63 Feeder cattle –September $152.98 +1.20; October $152.95 +1.43; November $152.73 +1.30; January $148.73 +1.15; September corn closed at $3.54 up $0.01 from Thursday.

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