Market Highlights: Challenges, Opportunities in Risky Cattle Market

FED CATTLE: Fed cattle traded $1 to $2 lower than last week on a live basis. Prices on a live basis were mainly $126 to $127 while dressed prices were mainly $203 to $205.

The 5-area weighted average prices thru Thursday were $126.80 live, down $1.35 from last week and $204.30 dressed, down $0.15 from a week ago. A year ago prices were $124.83 live and $199.99 dressed.

Cash cattle trade did not wait until the clock struck midnight to trade this week. Cattle feeders and packers were able to come to terms and trade cattle well before the end of business on Friday. Both parties had reason for urgency as it relates to trading cattle.

Cattle feeders had urgency due to live cattle futures declining much of the week while packers have recently seen late week live cattle rallies that forced them to pay higher prices. Softer prices this week may have many asking the question if the “spring” highs for finished cattle are already set.

Finished cattle prices generally surge in the spring months as grilling season approaches and the number of cattle coming off feed is seasonally lower. However, the dynamics are slightly different this year.

BEEF CUTOUT: At midday Friday, the Choice cutout was $222.76 up $0.46 from Thursday and up $4.68 from last Friday. The Select cutout was $214.58 down $1.02 from Thursday and up $1.69 from last Friday. The Choice Select spread was $8.18 compared to $5.19 a week ago.

The wholesale beef market seems to have a hint of spring to it with the surge in beef prices. Most of the support in this week’s price increase comes from the rib primal which gains interest during grilling season.

The spring market could very well be in play as retailers make purchases gearing up for the grilling season. If some of these purchases are in fact grilling season purchases then retailers and restaurants must think wholesale beef prices could continue moving higher in the next couple of months which would be the seasonal tendency for rib and loin cuts.

Purchasing now is a gamble considering the expectation of increasing beef production. Based on weekly federally inspected beef production values, beef production through the first seven weeks of 2018 is 3.3 percent higher than the same seven weeks in 2017.

Year-over-year increases are expected to continue and they could easily exceed the current increase of 3.3 percent. Regardless of the reason, packers will ride the wave of higher cutout prices and declining finished cattle prices as far as it will take them.

OUTLOOK: The cattle market is wrought with risk, and these risks can be laden with challenges and opportunities. The cattle markets have experienced wild swings in the past four years that have offered several opportunities, but the challenges overshadow the success of many cattlemen in today’s market. It would appear another challenging time is quickly approaching as it relates to markets and cattle prices.

The 2018 feeder cattle market started off on a strong note as feeder cattle futures made $10 to $12 gains on most contracts and local cash prices increased $10 on feeder cattle and as much as $15 per hundredweight on calves.

The calf and feeder cattle market price swing to the upside was largely due to strong finished cattle prices which meant cattle feeders had more dollars to spend on cattle to refill the pen. However, many of those pens may be occupied by cattle that came off wheat pasture early and those that would have normally went to wheat pasture but never had the opportunity.

Thus, the weakness that was present in the market this week could be a factor of both reduced finished cattle prices and reduced pen space at some feedlots. If these two factors are the driving force behind the price decline for feeder cattle then the decline may be short lived and prices should be supported moving into the late spring and early summer. However, if the price decline is due to a larger underlying issue such as increased beef production and no further increases in beef demand then softer prices may persist.

Moving beyond market and price risk, many producers in Tennessee experienced an extremely dry January and an extremely wet February. The implications of these two events may not significantly influence cattle producer profitability, but similar weather patterns during April and May could result in reduced forage production or difficulties with properly harvesting hay. Drought or too much rain can negatively influence profitability of cattle producers, but sometimes the total cost of such an event is not realized until a later date.

ASK ANDREW, TN THINK TANK: There have been several discussions this week concerning bull sales and expected progeny differences (EPDs) which is probably a factor of the impending breeding season. The discussions have ranged in topic and have included the timing of a bull sale, saturation of the bull market, bulls that should be steers, and matching EPDs to a herd of cattle or individual cattle to get the best end product from the dam. This is a wide range of topics, but they are all related to understanding the herd sire market and the intended market of the sire’s offspring. Producers must first know and understand the genetic needs of their cattle herd before considering bulls for purchase which means there is a need for data. Once the genetic needs are identified, then bull purchasers can evaluate sires with EPDs that complement the cow herd and result in the desired progeny. A bull with the desired characteristics is worth more than a bull that will not meet the needs of the operation. A cheap bull may be just that, a cheap bull. Paying a little more may result in more profits down the road.

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 $122.18 -1.15; June $114.40 -1.10; August $112.10 -0.88; Feeder cattle –March $143.68 -1.38; April $145.28 -1.48; May $146.53 -1.48; August $150.78 -0.95; March corn closed at $3.77 down $0.02 from Thursday.