Market Highlights: Supply and Demand Fundamentals Impact Cattle Prices

New veterinary feed directive rules took _x001F_effect Jan. 1, ending over-the-counter purchases for most medicated feeds.

FED CATTLE: Fed cattle trade was not established at press. Asking prices on a live basis were $125 to $126 while bid prices were primarily $122.

The 5-area weighted average prices thru Thursday were $121.94 live, down $0.90 from last week and $195.00 dressed, up $0.82 from a week ago. A year ago prices were $120.07 live and $191.92 dressed.

Cattle feeding margins are well into the black in early January and cattle feeders are setting asking prices at levels that will only improve margins which brings contentment to cattle feeders. At the same time, cattle feeders are not in any mood to bid up feeder cattle due to the severe discounts in deferred live cattle futures.

The feeder and fed cattle spread is certainly the dichotomy present in today’s market. The feeder-fed cattle spread is not at a record level by any stretch of the imagination but it has narrowed tremendously since the end of October. Part of this narrowing is due to supply and demand fundamentals while the other part is likely due to expectations. If profits continue in the feedlot then some of those dollars will eventually be passed down.

BEEF CUTOUT: At midday Friday, the Choice cutout was $212.82 down $1.14 from Thursday and down $2.03 from last Friday. The Select cutout was $207.14 down $0.63 from Thursday and down $0.68 from last Friday. The Choice Select spread was $5.68 compared to $7.03 a week ago.

Beef is generally considered a commodity product because of its lack of differentiation. Innovative producers however have attempted to produce a differentiated product or produce beef with certain attributes such as grass fed, non-hormone treated, or some other attribute such as a regional component to add value to the product. This practice has been met with success by some in the industry while others have failed to reach similar success levels. At the same time, innovative marketers have attempted to create beef brands that elicit some type of brand loyalty by promoting certain qualities or attributes of the beef product. Many times these brands have a minimum quality grade component or guarantees of production practices used or not used. Is there a next level to this segment of the industry? As cattle quality grades continue to improve, the changes could influence returns from these differentiation strategies. Will there be a time when a higher quality grade than Prime is instituted into the U.S. grading system? The innovators will let the industry know.
 
OUTLOOK: Since very few cattle were marketed through reported auctions in Tennessee the first week of January, it may be useful to know the trend this week compared to the last full week of trade in December. With that understanding, steer prices were $4 to $6 higher this week than the last full marketing week of December while heifer prices were $1 to $5 higher. Slaughter cow prices continue to struggle as they were steady to $2 lower while slaughter bull prices were $2 lower. This week brought some strong signs of winter and it proved to be in full force with cold nights and cool days. Harsh winter temperatures can sometimes weigh on producers as cattle feed needs generally increase with lower temperatures which results in increased hay usage and sometimes energy supplementation. As feed usage increases so do winter feed costs which will negatively influence returns to the cattle operation. Producers have to work diligently and delicately when balancing the winter feed costs and production measures. Overfeeding cattle will result in increased feed costs with little to no improvement in production parameters while underfeeding animals could negatively influence growth and reproduction. Though winter has reared its ugly head, the turning of the calendar to a new year is generally a welcome sign as calf prices tend to start slowly increasing. Calf prices should slowly and steadily increase moving through March and into early April. The expectation is for 500 pound steer prices to peak near $160 per hundredweight with a first quarter average price of $155. The $160 price is a couple of dollars lower than the 2018 apex, but the calf and feeder cattle markets may be under pressure the next three to four months as industry participants attempt to figure out the fed cattle marketing schedule. The feeder cattle market may end up receiving a more direct blow than the calf market in the near term as calf buyers continue to bet on the come. However, the calf market will not be immune to the pressure.

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ASK ANDREW, TN THINK TANK: Turbulent times in politics require cattle producers to be attentive, active, and flexible marketers. This statement stems from a question from a producer in North Carolina who was marketing his cattle the day after President Trump announced the first round of tariffs in 2018. The tariff announcement negatively impacted feeder cattle futures the following day which also negatively influenced the price received by the producer for his calf crop. We now live in a world where an individual can have a thought one second, post it to social media the next second, and in a matter of minutes it has reached the entire developed world. It does not matter if one deems the speed of information transfer good or bad. What matters for cattle producers is being able to respond to that information in a manner that can improve the situation or at a minimum fend off the negative impacts. In general, it is not possible for cattle producers to take lemons and make lemonade in a matter of seconds. Thus, educating ourselves with price risk management strategies and utilizing them when appropriate is one method of combating fickle market movements.

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 $124.98 +0.10; April $126.38 +0.45; June $117.20 -0.18; Feeder cattle –January $146.13 -0.63; March $144.90 -0.18; April $145.75 +0.08; May $146.05 +0.13; March corn closed at $3.79 up $0.03 from Thursday.

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