Market Highlights: Legion of Cattle on Feed

FED CATTLE: Fed cattle traded $2 to $3 lower than last week on a live basis. Prices on a live basis were mainly $109 to $110 while dressed prices were mainly $172 to $173.

The 5-area weighted average prices thru Thursday were $109.67 live, down $1.14 from last week and $176.83 dressed, down $1.11 from a week ago. A year ago prices were $121.51 live and $193.80 dressed.

Lower finished cattle prices have pushed cattle feeders into the red on closeouts, and it is doubtful much relief is going to come from finished cattle prices in the next couple of months. One bright spot for cattle feeders is lower feed costs as corn futures are 40 to 50 cents per bushel lower than they were one month ago and soybean meal is nearly $50 per ton lower.

There remains a legion of cattle on feed that will be coming to market in the next few months which will keep fed cattle prices in check. It will be important for cattle feeders to keep marketings current and not let the lower feed costs seduce them into holding cattle too long just to add some pounds. The market dynamics could make this interesting the next month or so.

BEEF CUTOUT: At midday Friday, the Choice cutout was $217.11 down $0.30 from Thursday and down $4.95 from last Friday. The Select cutout was $203.93 up $2.32 from Thursday and up $1.25 from last Friday. The Choice Select spread was $13.18 compared to $19.38 a week ago.

The beef, veal, and variety meat export market has been strong for most of 2018. Based on monthly data from January through April, total beef and veal exports in 2018 totaled more than 714 million pounds which is 12.4 percent greater than the same four months in 2017.

The value of those beef and veal exports totaled more than $2.3 billion which is 21.9 percent greater than a year ago. Similarly, beef variety meat exports the first four months of the year increased 1.6 percent compared to a year ago and were nearly 232 million pounds. Beef variety meat export value through April totaled $289 million which is 6.6 percent greater than the same period one year ago.

In the midst of a strong beef export market, there is concern among many people in the agricultural industry as trade war talks continue to be stoked with the threats of tariffs. Tariff threats have contributed to a major decline in soybean prices, but the beef market has yet to fill any major effects. It is difficult to measure the impact of a Tweet, but a Tweet by the President seems to influence the market.

OUTLOOK: Based on Tennessee weekly auction market price averages, steer prices were steady to $5 higher compared to last week while heifer prices were steady to $2 higher compared to a week ago. Similarly, slaughter cow prices were steady to $2 higher compared to last week while slaughter bull prices were steady to $1 lower.

As the market moves into the heat of summer, many producers are forced to make marketing decisions based on forage availability. Thus, there are several producers in the state with calves or feeder cattle that could be marketed today or the alternative is to hold those cattle for a little longer to add weight if feed resources are available as it relates to grass and affordable as it relates to concentrates. This means value of gain and cost of gain need to be evaluated to determine when to market cattle.

Using a static approach to calculate value of gain, which is simply considering the current week’s price, adding 100 pounds to a 525 pound steer has a value of gain of $75 or $0.75 per pound. Adding 100 pounds to a 625 pound steer has a value of gain of $1.07 per pound.

On the heifer side of the business, the value of gain ranges from $0.68 to $0.88 for an additional hundred pounds when considering heifers from 525 to 775 pounds.

Though this static approach to value of gain is simple and useful, a more appropriate method is trying to determine the future price of the animal that will be marketed following a growing period. The value of gain for carrying steers to the 600 to 800 pound range appears even more beneficial as prices for these weight classes are seasonally stronger moving through the summer months. The value of gain on steers appears to be in the $0.95 to $1.10 per pound range.

Likewise, the value of gain for heifers using expected prices later this summer increases relative to the static analysis. The value of gain on the heifers appears to be slightly higher than the steers which is largely due to less of a discount relative to steers as heifers add weight. Thus, producers should consider the cost of adding weight with forage and concentrates this summer.

The June cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of June 1, 2018 totaled 11.55 million head, up 4.1% compared to a year ago, with the pre-report estimate average expecting an increase of 3.4%. May placements in feedlots totaled 2.12 million head, up 0.2% from a year ago with the pre-report estimate average expecting placements down 4.2%. May marketing’s totaled 2.06 million head up 5.4% from 2017 with pre-report estimates expecting marketings up 5.2%. Placements on feed by weight: under 700 pounds up 7.9%, 700 to 899 pounds down 7.0%, and 900 pounds and over up 3.1%.

ASK ANDREW, TN THINK TANK: There have been several comments the past couple of weeks concerning fly infestation and negative impacts on cattle including eye irritation and poor growth performance. The true economic impact of flies on cattle is tough to calculate. However, a team of researchers at the University of Tennessee is attempting to determine the impact of flies on cattle and the economic losses. At the same time, the team of researchers is attempting to identify characteristics that lead to some cattle being less susceptible to flies than their herd mates as well as trying to determine the value cow-calf producers to feedlot operators place on such a characteristic. This research is just getting underway so it is going to take some time before any results can be shared. However, the hope is that a positive result is discovered and that result is something producers can institute into the cattle operation to improve net returns.

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 $108.28 -0.38; August $105.90 -0.23; October $109.40 +0.40; Feeder cattle –August $149.20 +0.73; September $149.83 +0.58; October $149.48 +0.45; November $149.13 +0.40; July corn closed at $3.57 up $0.01 from Thursday.