Market Highlights: Elevated Cattle on Feed, Feedlot Placements Slow

FED CATTLE: Fed cattle trade was not established at press. Asking prices on a live basis were mainly $115 to $116 while bid prices were mainly $108 to $110.

The 5-area weighted average prices thru Thursday were $112.73 live, down $2.15 from last week and $180.81 dressed, down $3.47 from a week ago. A year ago prices were $131.59 live and $208.60 dressed.

Finished cattle trade was thin at best this week and this could be because of significant delayed delivery trade in previous weeks. Additionally, thin cash trade this week could be due to the holiday shortened slaughter week next week.

The failure to market many cattle this week will likely result in a strong need to market cattle next week. The one thing the industry cannot afford to do is backup cattle and not be current.

Cattle backing up is not a concern at this time as most feedlots are current in their marketings, but it would only take a few weeks to start getting cattle too big. Finished cattle prices will be under pressure the next few months as the packer will maintain leverage over the cattle feeder.

BEEF CUTOUT: At midday Friday, the Choice cutout was $227.41 down $1.59 from Thursday and down $5.21 from last Friday. The Select cutout was $204.89 down $0.04 from Thursday and down $3.77 from last Friday. The Choice Select spread was $22.52 compared to $23.96 a week ago.

Based on beef cutout prices, it would appear the wholesale beef market is beginning to experience some fatigue. Year-to-date federally inspected beef production is 3.5 percent higher than one year ago.

There have been five weeks this year with greater than a 6.0 percent increase in production compared to the same week one year ago. The last three weeks of data make up three of those five weeks.

It is expected that many of the weeks in the next couple of months will far surpass production from the previous year as many of the cattle that entered the feedlot earlier than normal will be marketed to packers.

Another influence for softer prices is that Memorial Day buying is complete. There may be some post-holiday purchasing, but it will likely be limited in nature. Increased beef production and the heat of summer will take their toll on the market, but prices should not completely fall apart as beef demand remains strong.

Another factor at play is pork production which is 3.6 percent higher in 2018 than 2017 year-to-date.

OUTLOOK: This is one of the busiest times for cattle producers as most are in the midst of harvesting hay between spring showers. However, it is important for producers to keep an eye on cattle markets as marketing opportunities or hedging opportunities present themselves. This may be most important for fall calving operations that put calves through a backgrounding phase during the summer months.

Feeder cattle futures appeared to heat up this week just like the temperatures, but the price escalation this week is no guarantee. The August feeder cattle contract is a good example of no guarantees. The August feeder cattle contract traded just shy of $156 in the middle of February before free falling to a low of $135 in early April. By the end of April, the August contract had traded just above the $149 price level to once again fall below $137 in the middle of May.

As of this writing, the August contract was back in the $142 to $144 price range and waiting for the May cattle on feed report to spur the next price movement. The number of cattle on feed remains elevated compared to last year, but the number of cattle placed in feedlots during April has slowed tremendously.

Much of reduction in placements is due to cattle being placed earlier than normal which means cattle will likely be coming off feed earlier than normal and likely at lighter weights than would be expected. As these cattle are harvested and large quantities of meat are produced, feeder cattle producers will gain an education with regards to how cattle feeders will approach refilling pens in this environment.

It has been stated in this column that the early placements last fall and winter would support feeder cattle prices this summer as feedlots looked to fill pen space. This statement may remain true given the current market, but the market has experienced weakness that was not expected when the previous statement was originally made.

The May cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of May 1, 2018 totaled 11.56 million head, up 5.1% compared to a year ago, with the pre-report estimate average expecting an increase of 4.8%. April placements in feedlots totaled 1.70 million head, down 8.3% from a year ago with the pre-report estimate average expecting placements down 9.4%. April marketing’s totaled 1.80 million head up 5.9% from 2017 with pre-report estimates expecting marketings up 6.0%. Placements on feed by weight: under 700 pounds down 8.8%, 700 to 899 pounds down 12.7%, and 900 pounds and over up 9.6%.

ASK ANDREW, TN THINK TANK: No questions were received this week. Thus, it may be appropriate to share with readers how research and extension personnel at the University of Tennessee are working to answer questions for cattle producers in the state. Personnel in the Institute of Agriculture are constantly attempting to address questions posed by producers in the state. Some of the large projects currently in progress include evaluating a state branded certified beef program, cost share incentives to implement practices to improve water use efficiency, impacts of reproduction efficiency on profitability, valuation of sire traits, organic forage production, identifying and valuing horn fly tolerant cattle, and a systems approach to improve the “sustainability” of beef cattle production. This is not an exhaustive list nor is much detail provided here. The purpose is to let folks know that work is being done and results are slowly coming in.

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 –June $104.65 +0.25; August $102.30 +0.53; October $105.83 +0.58; Feeder cattle –August $144.93 +1.63; September $144.45 +1.35; October $144.33 +1.13; November $144.93 +1.20; July corn closed at $4.06 up $0.02 from Thursday.