Market Highlights: Strong Prices for Heavy Feeder Cattle

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

FED CATTLE: Fed cattle trade was not established at press. Asking prices on a live basis were $127 to $130 while bid prices were primarily $123.

The 5-area weighted average prices thru Thursday were $125.00 live, up $3.06 from last week and $197.00 dressed, up $2.00 from a week ago. A year ago prices were $120.61 live and $193.00 dressed.

Cattle feeders could not be happier with the direction of live cattle futures which have helped support higher cash cattle prices. Since the middle of November, the February live cattle contract price has increased by $9 which would amount to approximately a $120 per head value increase. On the cash side of the business, prices increased $10 per hundredweight from the middle of November to last week and this week’s prices appear geared to gain another couple of dollars. Over this time period, cattle feeding margins and packer margins have been flipped as cattle feeders appear to be in control of the leverage. The one thing cattle feeders are not doing is spending all their profits on feeder cattle.

BEEF CUTOUT: At midday Friday, the Choice cutout was $212.87 up $0.37 from Thursday and up $0.05 from last Friday. The Select cutout was $209.59 up $1.95 from Thursday and up $2.45 from last Friday. The Choice Select spread was $3.28 compared to $5.68 a week ago.

Beef cutout values are a composite value calculated using the price of individual beef products and multiplying those prices by the percentage of the carcass that the individual cut makes up of the carcass. The Choice beef cutout price started the year $4 to $8 higher than January 2018. The higher cutout value stems from higher middle meat prices and remains higher despite lower end meat prices. As an example, the wholesale beef ribeye price is $53 per hundredweight higher (+7.7%) than the same time one year ago. Similarly, the wholesale beef full tender price is $62 per hundredweight higher (+6.4%) than January one year ago. 

Despite the support provided by middle meats, end meat prices such as the bottom round are $18 per hundredweight lower (-8.6%) than last year. Despite the struggles in the round and chuck, the brisket and short plate are also providing support to overall value. It is also important to note what percentage of the carcass a primal represents: rib (11.40%), chuck (29.62%), round (22.32%), loin (21.26%), brisket (4.95%), short plate (7.10%), and flank (3.35%).
 
OUTLOOK: Positive words on the cattle market and sunshine generally provide encouragement to the spirit of cattle producers, but neither of these has been present the past couple of weeks. Compared to last week’s Tennessee weekly auction averages, steer prices this week were steady to $5 lower while heifer prices were steady to $4 lower with a few as much as $8 lower. Similarly, slaughter cow prices were $2 to $3 lower compared to last week while slaughter bull prices were $1 to $3 lower than a week ago. The price situation is not any better for yearling cattle as many feedlots are in no humor to purchase cattle and transport them through wet and icy road conditions to then run the calves off the truck into muddy pens.

At the same time, cattle feeders are in no humor to pay big dollars for feeder cattle that will be placed against the June and August live cattle futures that are at a $10 and $14 discount to April respectively. The heavy summer discount on live cattle futures has begun hitting local producers hard as local load lot prices for heavy yearlings in January are running about $5 per hundredweight lower than December and as much as $15 per hundredweight lower than loads sold in November. The feeder cattle index has declined $11 since the beginning of November. It is easy to say that there do not appear to be any fundamental reasons for the market to move lower, but that has been said before and the market has moved lower based on unsubstantiated expectations. The bright spot is that the price of a 900 pound steer is the same as the price of an 800 pound steer which provides incentive to keep feeding cattle and growing them larger. The price signal on heavy feeder cattle is the market signal feedlot managers are sending to producers. At this time, the best decision may be to keep feeding 700 and 800 pound feeder cattle and keeping an eye on the cash market. The wrong decision is to throw all conventional wisdom and knowledge out the window, because the market will adjust and find its equilibrium.

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ASK ANDREW, TN THINK TANK: The new year is well under way and winter appears to be throwing an arctic blast across most of the country. With extremely cold temperatures and moisture headed for most of the Southeast, this weekend may be a good time to look at the 2019 University of Tennessee Extension enterprise budgets for cow-calf production, stocker cattle production, and row crops. The 2019 budgets can be accessed through a pdf file or Excel file on our Budgets page. Producers are encouraged to consider the assumptions made in each of the pertinent budgets and then amend the budgets to fit the individual operation. Some hard copy budgets will be available at county Extension offices. For those looking for forage budgets, we are in the process of finalizing cool and warm season perennial forage budgets for 2019. Information will be passed along as soon as the forage budgets have been completed and posted online.

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 –February $126.53 -0.58; April $127.38 +0.48; June $117.45 +0.63; Feeder cattle –January $141.45 +0.03; March $142.83 -0.10; April $144.40 +0.18; May $145.05 +0.30; March corn closed at $3.82 up $0.02 from Thursday.

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