Market Highlights: Beef Demand Adding Strength to Cattle Markets
FED CATTLE: Fed cattle trade was not well established at press. Asking prices on a live basis were mainly $111 to $112 with bids from $106 to $107. Dressed bids ranged from $168 to $170.
The 5-area weighted average prices thru Thursday were $107.17 live, down $1.91 from last week and $169.31 dressed, down $3.51 from a week ago. A year ago prices were $104.67 live and $165.65 dressed.
Despite Labor Day weekend looming, cattle feeders and packers found little to no common ground early in the week. The failure to agree on a price pushed cattle trade to a late week occurrence which has become common place the past several months.
Live cattle futures are hollering for lower prices, which is a welcome sound for packers. However, cattle feeders are holding firm because closeouts plunging deeper into the red is not acceptable.
It would seem inevitable that finished cattle prices will hit a soft spot when all fundamentals are considered, but they have found a way to be supported to this point. Industry participants should not be surprised if prices move lower.
BEEF CUTOUT: At midday Friday, the Choice cutout was $210.00 down $1.73 from Thursday and down $3.20 from last Friday. The Select cutout was $200.65 down $1.56 from Thursday and down $2.22 from last Friday. The Choice Select spread was $9.35 compared to $10.33 a week ago.
The price movement since last Friday in the boxed beef market appears to fall directly in line with comments made one week ago concerning prices moving lower. The holiday grilling season comes to a close with the passing of Labor Day which also marks the unofficial end of summer just as Memorial Day marks the unofficial start of summer.
It seems certain beef packers are destined to trudge aimlessly through the fall months searching for a ray of hope in the beef market. This is no fault of their own but rather the seasonal shift in consumer eating habits.
Demand for beef can and likely will remain strong, but wholesale beef prices will still succumb to downward pressure. Lower wholesale prices should not be interpreted negatively as this is a seasonal trend and prices are expected to be relatively strong for the time of year and the quantity of beef products available.
The market will also be hampered by large pork production in the fourth quarter but holiday beef buying will provide a lifeline in December.
OUTLOOK: Based on Tennessee weekly auction price averages, steers traded steady to $3 lower compared to last week while heifer prices were unevenly steady compared to a week ago. Slaughter cow and slaughter bull prices were $1 higher than last week.
The strength in the cattle market is largely due to strong beef demand. If it were not for strong beef demand, prices of most classes of cattle would be moving lower and at a fairly quick clip.
The classes of cattle with the most downside risk at this point in the year is freshly weaned calves and slaughter cows. As marketings of these two classes of cattle begin to increase moving through September and then peak in October and November, prices will most likely decline due to calf supply and forage availability. Readers of this information should not take this information as a guarantee, but it should be considered that the probability of prices declining is much higher than prices increasing.
The fall of 2017 is a decent example of the seasonal trend though it is not perfect. From September through November of 2017, 500 to 600 pound steer prices traded between $140 and $150 per hundredweight with an average price just under $144 while the average price from April through August was $151 resulting in a 5 percent price decline. Thus, the freshly weaned steer market declined about $40 per head from the spring and summer market to the fall calf selloff.
The five year average price decline has been closer to $14 per hundredweight (7.5 percent) moving into the fall market. What this means is that the likely scenario is for calf prices to decline moving through the next three months.
The options that remain available to producers include sacrificing a few pounds and market calves as quickly as possible, continue to grow calves and sell on a market where prices are 5 to 7 percent lower than today, or continue to grow the calves following weaning and market the cattle sometime after the first of the year. It is important to remember there are tax implications when marketing after the first of the year.
ASK ANDREW, TN THINK TANK: A recent question a producer asked was if it was more profitable to be in the stocker cattle business or the cow-calf business. A direct answer would be that seven out of ten years, the stocker business is more profitable than the cow-calf business. However, the economic answer is that it depends. A cattle producer must understand the risks associated with the stocker and cow-calf business as well as know their own risk tolerance. Additionally, the cattle producer must be able to apply their physical and educational resources to the highest value. Determining which option is best for an individual producer is not always simply solved through budgeting. Availability of resources such as labor, production knowledge, and feed may be the deciding factor. For assistance answering this question, contact the local Extension office and get in touch with the Farm Area Management specialist. They are a tremendous resource.
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 $108.78 -0.30; December $112.98 -0.33; February $116.88 -1.70; Feeder cattle –September $149.45 -0.73; October $149.13 -1.25; November $149.00 -1.15; January $145.80 -1.45; September corn closed at $3.51 up $0.10 from Thursday.
