Market Highlights: Beef Production Continues to Climb
By: Andrew P Griffith, University of Tennessee
FED CATTLE: Fed cattle traded $2 lower compared to last week on a live basis. Live prices were mainly $124 to $125 while dressed prices were mainly $204 to $205.
The 5-area weighted average prices thru Thursday were $124.43 live, down $1.91 from last week and $204.03 dressed, down $1.57 from a week ago. A year ago prices were $116.33 live and $187.65 dressed.
The finished cattle market experienced its second straight week of softer prices which has essentially resulted in prices dropping $4.50 per hundredweight. The market could have very well already seen the spring highs for finished cattle.
It is not unheard of for finished cattle prices to peak in March, but there generally is price support in April and May with reduced slaughter weights and beef demand starting to build. If the 2018 market trend is any indication of what will happen in 2019, then prices will struggle to exceed the current price level the remainder of the year. To negate some of the doom and gloom, the 2019 market fundamentals are not aligned perfectly with 2018 which provides a little hope of stronger prices than a year ago.
BEEF CUTOUT: At midday Friday, the Choice cutout was $226.73 down $0.01 from Thursday and up $0.72 from last Friday. The Select cutout was $219.74 up $1.38 from Thursday and up $0.40 from last Friday. The Choice Select spread was $6.99 compared to $6.67 a week ago.
Beef in cold storage at the end of February totaled 479 million pounds which was a 31 million pound decline from the end of January but a 20 million pound increase from February 2018. Beef in cold storage is manageable as is pork in cold storage which totaled 616 million pounds in February. However, beef in cold storage may be a value to keep an eye on the next several months as beef production is expected to increase compared to a year ago and trade is never certain.
Commercial beef production in January totaled 2.3 billion pounds which was an increase in production of 295 million pounds compared to January 2018. Looking at trade, beef and veal exports in January totaled 237 million pounds which was nearly 6 million pounds less than a year ago while January beef and veal imports increased a little over 2 million pounds to 253 million pounds. With the expectation of increased beef production paired with fewer beef exports and more beef imports to start the year, product that is not being utilized will appear in the cold storage report.
OUTLOOK: Studying markets is a large part of what cattle producers are tasked with doing to be successful. In reality, it is not the market that has to be studied but the people in the market that should be studied. If it appears the market is moving irrationally then it is likely the people in the market are acting irrationally to some degree.
From an economics standpoint, the assumption is that producers act rationally to garner the greatest profits possible. However, this is a short sighted assumption, because people make decisions on more than just profitability. These market participants are not making irrational decisions. Market participants have other objectives, and the alternative objectives can make the market appear to move irrationally. This may be most noted in the feeder cattle market where feeder cattle remain undervalued which has continued to bleed into the spring calf market.
Based on Tennessee weekly auction market price averages, steer prices were steady to $2 higher than last week while heifer prices were unevenly steady compared to a week ago. Freshly weaned calves averaging 525 pounds finally reached the bottom end of the expected price range for spring sales at $160 per hundredweight, but this price would have been easily surpassed had feeder cattle prices ever built any steam.
The focus for feeder cattle is the summer and fall contract months which continue to trade at a premium to nearby contracts. This may result in stocker and backgrounding operations pushing marketings further down the road to take advantage of the expected higher prices.
Another market in Tennessee that has stumbled the past two weeks is the slaughter cow market. Slaughter cow prices were $3 to $5 lower compared to last week while slaughter bull prices were steady. There is little information to support the softer prices as 90 percent lean beef demand has been strong as of late. Could slaughter cow supply and capacity of local processing be forcing prices lower? This may or may not be a reason for the current softness.
ASK ANDREW, TN THINK TANK: It sometimes seems that everyone that eats thinks they can become a farmer. This may be an overstatement, but there are many people that purchase some land and then try to find a way for the land to make a few dollars. In many cases, these folks turn to livestock as the alternative. This thought process is admirable. However, the issue is that most lay people do not think of farming as a business. To be clear, farming is a business, and it should be treated as such. Thus, for readers of this article who want to start producing livestock or for readers who know someone who wants to follow the farming path, this is a business that must be studied to be successful. If a person jumps in head first without studying then the purchase of land will be a small cost relative to how much can be lost by not knowing what to do and when to do it. Start the process with studying and asking questions of other producers, because this will become a way of life if a person expects to stay in the business very long.
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 –April $126.05 -1.50; June $120.35 -1.23; August $117.38 -0.85; Feeder cattle –April $146.15 -0.18; May $150.23 +0.15; August $156.73 -0.48; September $158.23 -0.25; May corn closed at $3.63 down $0.03 from Thursday.
