Market Highlights: Picture Clears for Rest of Year After Cattle Report

FED CATTLE: Fed cattle trade was not well established at press. Asking prices on a live basis were mainly $115 to $116 while bid prices were mainly $109 to $110.

The 5-area weighted average prices thru Thursday were $110.10 live, down $3.01 from last week and $176.09 dressed, down $4.09 from a week ago. A year ago prices were $117.18 live and $187.88 dressed.

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When cattle finally traded last week, they were $2 higher than the prior week, but cattle feeders and packers continue to be slow coming to terms on price again this week. Packers have been losing dollars in the wholesale market and cattle feeders are marketing cattle that are doing well to break-even in some cases.

The struggle between the two has brought price determination to a standstill, and it is doubtful that prices will test the $100 price mark this summer. It appears both the packer and the cattle feeder think they hold leverage over the other in the current market which is why trade is slow to occur. The key for both groups will be to keep cattle marketings current and keep beef moving.

BEEF CUTOUT: At midday Friday, the Choice cutout was $205.11 up $0.20 from Thursday and up $1.19 from last Friday. The Select cutout was $198.57 up $0.30 from Thursday and up $1.82 from last Friday. The Choice Select spread was $6.54 compared to $7.17 a week ago.

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Following nine consecutive weeks of Choice boxed beef prices steadily declining, Choice and Select beef prices turned around this week. The nine week price decline saw the Choice box price decline more than $27 per hundredweight, but it has yet to really test the $200 mark which was mentioned as a possibility in an earlier column.

Last week’s Choice price was the lowest price for wholesale Choice beef since the last week of December 2017. Current prices are still slightly below prices from the same week one year ago, but they have shown considerable strength compared to last year.

Looking at prices from 2017, the Choice cutout peaked at nearly $251 in the middle of June and collapsed to $191 in the middle of September which is a loss of $60. Thus, the decline in 2018 has only been 45 percent of the summer decline in 2017.

Historical price data would imply there is still potential for downside price risk in the wholesale beef market. However, if packers can hold current prices or push them higher next week then the risk may be very small.

OUTLOOK: The July 1, 2018 cattle inventory report was released last Friday, and it contained few surprises relative to what was expected by industry analysts. All cattle and calves as of July 1 totaled 103.2 million head which is 1 million more head than the previous July.

Most of the increase comes from a 692,000 head increase in the calf crop compared to a year ago. The calf crop estimate totaled 36.5 million head with 26.6 million in the first six months of the year and 9.9 million in the second half of the year. Beef cows that calved totaled 32.5 million head which is an increase of 300,000 head compared to one year ago.

One number that declined was heifers held for beef cow replacement and it declined 100,000 head compared to last year and came in at 4.6 million head. This information may be interesting to some, but most in the industry are trying to determine what this means for the cattle herd as far as expansion and contraction are concerned which leads to expected prices for feeder cattle and live cattle the next few years.

July 1 inventory numbers along with heifer and cow slaughter numbers for the first half of the year would certainly indicate a slowing of the expansionary phase of the beef cattle herd. However, these numbers do not necessarily mean the herd is contracting.

Moving through the second half of 2018, the picture will become even clearer as the fall run of calves come to market and as producers continue to cull cows. It is almost certain calf and feeder cattle prices will deteriorate moving into the fourth quarter of 2018 which will result in fewer heifers retained and more cows going to market. However, the January 1, 2019 cattle inventory report will most likely show an increase in total cattle inventory in the 0.3 to 0.8 percent range compared to January 1, 2018.

This means prices will be pressured lower in 2019 and 2020 which will lend itself to contraction of cattle inventory. A number of things could blow this analysis to pieces such as drought or trade issues but this is based off the current situation.

 

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ASK ANDREW, TN THINK TANK: There have been several questions the past few weeks concerning the projected impact of tariffs on beef trade. The answer to such a question is nearly impossible to predict as the short term answer and long term answer are likely different. At the same time, there may not be any long term in that some things change so quickly that the market never actually has time to fully adjust. From January through May, beef and veal exports to China make up 0.75 percent of total U.S. beef and veal exports. The increase in tariff rates with China will primarily impact soybeans and pork. Thus, the domestic market will have to absorb more pork or it will have to go to alternative destinations. NAFTA may be a more important issue than China. Mexico has accounted for 13.9 percent of beef and veal exports the first five months of the year while Canada has accounted for 10.0 percent. No matter the country, trade negotiations need to progress quickly or U.S. farmers will struggle in the short term.

Please send questions and comments to [email protected] 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 $108.63 +0.68; October $110.48 +1.10; December $114.15 +0.50; Feeder cattle –August $152.30 +0.88; September $152.18 +0.35; October $152.75 -0.13; November $152.50 -0.63; September corn closed at $3.62 up $0.01 from Thursday.

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