FED CATTLE: Fed cattle trade was not well established at press. The expectation is for a softer trade given the increase in cattle on feed.
The 5-area weighted average prices thru Thursday were $118.02 live, down $1.46 from last week and $188.06 dressed, down $2.02 from a week ago. A year ago prices were $114.65 live and $184.83 dressed.
Cattle feeders were asking for higher prices even though live cattle futures were softer on the week. Higher asking prices on the cash market and softer futures prices had packers holding trade until after the cattle on feed report.
Packers decided it would be wise to obtain a little more information in hopes the cattle on feed report would support the lower futures market price and thus support lower finished cattle prices on the cash market. This was a last gasp effort by packers who continue to be hampered by lower cutout prices. Even with information from the cattle on feed report, it makes it difficult to determine the direction of next week’s prices. The expectation is for there to be little change.
BEEF CUTOUT: At midday Friday, the Choice cutout was $206.91 down $0.74 from Thursday and down $2.34 from last Friday. The Select cutout was $194.59 down $0.99 from Thursday and down $0.81 from last Friday. The Choice Select spread was $12.32 compared to $13.85 a week ago.
The decline in wholesale beef prices has been garnering significant attention throughout the beef industry for several weeks now, as it should. While beef prices have been declining, the Choice Select spread has narrowed at a fairly rapid pace.
Using weekly data dating back to 2004, the Choice Select spread reached record highs the first couple of weeks of June and actually topped the $30 level. Since the middle of June the Choice Select spread has narrowed about $18. The widening and narrowing of the spread was mainly due to demand factors as opposed to supply factors.
Since April, the weekly percentage of beef grading Choice has ranged from 69.8 percent to 73.2 percent and it is difficult to see much correlation between percent of beef grading Choice and the Choice Select spread over that time. From the demand standpoint, consumers were hungry for middle meats as was the export market during May and June. However, domestic consumers have shifted focus to ground beef as is evidenced by the price increase in fresh 90 percent lean beef from $218 to $233 (7% increase).
OUTLOOK: Feeder cattle prices are riding seasonal price strength as summer is in full stride. Steer prices on Tennessee weekly auctions were $1 to $3 higher compared to last week while heifer prices were $2 to $6 higher compared to one week ago. Evaluating the last ten years of Tennessee price data for feeder steers weighing more than 700 pounds, prices in July have averaged 3.6 percent above the annual average price. Similarly, prices in August have averaged 4.3 percent above the annual average for the same weight class steer.
A seasonal price trend is one tool producers should consider utilizing when timing the marketing of cattle. Another useful tool to time marketing is the futures market. The futures market is currently favorable to feeder cattle prices for the August feeder cattle contract, but traders have pushed the September contract higher than the August contract several times recently. This is an example of why multiple sources of information should be used when trying to achieve a higher value for livestock. Additionally, October and November feeder cattle futures are relatively strong compared to the deferred contracts going into 2018.
Given the price levels for all feeder cattle futures contracts being traded, it would appear the market is somewhat out of line given the fall 2017 contracts are trading at a $6 to $10 premium to the Spring 2018 feeder cattle contracts and the summer 2017 contracts are only slightly higher than fall contracts. This may lead some to believe the fall 2017 contracts are somewhat overbought and will soften once the summer market is complete while the same information may also indicate spring contracts are oversold. If the aforementioned is the case then fall prices will soften and spring prices will strengthen as the market moves closer to the given marketing time periods. Prices for both time periods are expected to maintain profitable price levels for feeder cattle, but spring contract prices are expected to outperform prices in the fall months.
The July cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of July 1, 2017 totaled 10.82million head, up 4.5% compared to a year ago, with the pre-report estimate average expecting an increase of 2.8%. June placements in feedlots totaled 1.77 million head, up 16.1% from a year ago with the pre-report estimate average expecting placements up 5.9%. June marketing’s totaled 1.99 million head up 4.0% from 2016 with pre-report estimates expecting marketings up 4.6%. Placements on feed by weight: under 800 pounds up 26.6% and 900 pounds over no change.
ASK ANDREW, TN THINK TANK: A couple of weeks ago, a producer noticed the price he received for his calves at a local livestock market was not captured in the range of prices reported by the USDA- Agricultural Marketing Service for the particular auction. The producer’s question was in relation to why all cattle prices were not reported in the daily and weekly reports. First, it is important to understand what is being reported and why some animals are not being reported. USDA feeder cattle reports capture prices of feeder cattle based on sex, frame size (large, medium, small), and muscle score (number 1, 2 and 3). However, regardless of frame or muscling, animals with defects such as limping, a wound, pinkeye, or other health problems are not reported in price reports because those animals are generally discounted and do not fit the description of the healthy animals being traded. Similarly, certain breeds (largely exotic breeds) of cattle are generally not reported, because they are not comparable to the common breeds of animals in the local marketplace.
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 $116.43 +0.55; October $117.40 +0.33; December $118.18 +0.08; Feeder cattle –August $152.95 +0.68; September $153.15 +0.83; October $151.95 +1.10; November $150.43 +1.05; September corn closed at $3.80 down $0.11 from Thursday.