Market Highlights: High Feedlot Placements Means Demand for Feeders

FED CATTLE: Fed cattle traded $5 to $6 higher than last week on a live basis. Prices on a live basis were mainly $112 to $114 while dressed prices were mainly $175 to $180.

The 5-area weighted average prices thru Thursday were $110.00 live, up $3.65 from last week with no dressed trade occurring through Thursday. A year ago prices were $117.52 live and $187.87 dressed.

Cattle feeders did not have any intention of doing any business prior to the mid-week holiday and then held out until Friday to do most of their marketing. The strategy paid off this week with strong gains on finished cattle prices.

The higher prices may not pull closeouts completely out of the red, but it will reduce losses significantly and may make a few cattle profitable. This price resurgence does not necessarily mean fed cattle prices have hit their summer low as the potential to move to the $105 area remains feasible.

However, higher prices this week may be shedding some light that moving that low is not as likely as previously thought. The stronger live cattle prices have also strengthened cattle feeders’ outlook which means strong demand for feeder cattle.

BEEF CUTOUT: At midday Friday, the Choice cutout was $208.13 down $0.30 from Thursday and down $8.98 from last Friday. The Select cutout was $199.08 up $0.38 from Thursday and down $0.75 from last Friday. The Choice Select spread was $9.05 compared to $13.33 a week ago.

It was mentioned last week that Choice beef could very well test the $200 price point. In one week’s time, more than half of Choice beef’s buffer was shaved off. Though packers are well into triple digit profits per head, declining wholesale beef prices will have them on the edge of their seats and ready for action. This is further exacerbated by stronger finished cattle prices this week. Looking more broadly at the beef market, the U.S. has been a net exporter of beef the first six months of 2018. However, fresh beef imports the first six months of the year are five percent greater than the same months in 2017. The top beef import sources are Canada, New Zealand, Australia, and Mexico. Canadian beef imports are up ten percent compared to a year ago and total 134,146 metric tons while New Zealand imports are up nine percent and total 118,839 metric tons. Similarly, Australian fresh beef imports increased two percent to 107,612 metric tons while Mexico beef imports are up six percent to 98,003 metric tons.

OUTLOOK: Due to the Independence Day holiday, Tennessee weekly cattle auctions were not reported this week. Thus, there are no cattle price trends to report compared to a week ago. Information that is available to report and discuss is feeder cattle futures and sale results of feeder cattle from the Lower Middle Tennessee Cattlemen’s Association July sale.

August feeder cattle futures have been on a roller coaster ride since the beginning of the year. The August contract nearly traded at the $156 price mark in mid to late February before bottoming out with a trade at the $135 price point in early April.

The August feeder cattle futures price from early April through late June has bobbed, weaved, ducked, and dived. However, in the past couple of weeks, August feeder cattle futures have surged to a price level exceeding $152 per hundredweight.

The three remaining summer and fall contract months fell in line with the August contract and are trading fairly steady with August. The higher futures price has supported local feeder cattle prices as was evident with strong prices on the July 6th Lower Middle Tennessee Cattlemen’s Association sale. Five loads of steers with average weights ranging from 890 to 940 pounds brought from $1,231 to $1,276 per head while four loads of heifers with average weights ranging from 775 to 835 pounds sold for $1,015 to $1,092 per head.

Comparing the June sale and the July sale, August feeder cattle futures for the July sale date traded about $6 higher than they did on the day of the June sale. Looking at cash prices, prices for the July sale were $6 to $10 higher for steers than last month while heifer prices were $3 to $4 higher compared to a month ago.

Demand for feeder cattle was marked as strong and this is likely due to reduced feeder cattle offerings due to strong feedlot placements the past few months. There is a strong likelihood that feeder cattle prices will remain strong through the summer marketing period as is seasonally expected.

ASK ANDREW, TN THINK TANK: At least twice a year, a question concerning custom rates for field work is asked. This question came through an email this week for rates concerning mowing, teddering, raking and baling hay. In 2013, a survey of custom operators in Tennessee was conducted and the results of that survey can be found at the following web address https://ag.tennessee.edu/arec/Documents/publications/CustomRates2013-rev.pdf. The results of the survey are five years old, but the rates are a good starting point for today’s custom rates. Custom rates in the publication include tillage operations, fertilizer and chemical application, planting, grain and hay harvest, and machinery rental rates.

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 –August $106.38+0.00; October $109.73 -0.40; December $113.70 -0.58; Feeder cattle –August $152.20 -0.38; September $152.28 -0.30; October $152.15 -0.38; November $152.03 -0.53; July corn closed at $3.52 up $0.08 from Thursday.