Market Highlights: Meat Trade Picture Mixed for Beef
By: Andrew P. Griffith, University of Tennessee Extension
FED CATTLE: Fed cattle traded steady to $1 higher in the South compared to last week. Live prices were mainly $126 to $127 while dressed prices were mainly $204 to $205.
The 5-area weighted average prices thru Thursday were $126.75 live, down $1.62 from last week and $204.62 dressed, down $3.15 from a week ago. A year ago prices were $120.95 live and $193.93 dressed.
It has been difficult the past two weeks to fully understand what is happening in the finished cattle market. The April contract which will soon be pushed to the wayside steadily increased from the low $120s to about $130 from November through the middle of March. Since that time, the contract moved from$126 to $128 and then declined to $124 all in a matter of two weeks.
Similarly, the cash finished cattle market has moved in a similar pattern with no definitive reason for the gyrations. Maybe last week’s cattle on feed report was an influencing factor or maybe it is a broader market signal related to demand. Either way, the market appears to have some uncertainty in it as is evident in the futures market. This does present opportunities.
BEEF CUTOUT: At midday Friday, the Choice cutout was $232.90 down $0.03 from Thursday and down $0.31 from last Friday. The Select cutout was $218.96 down $0.79 from Thursday and down $2.82 from last Friday. The Choice Select spread was $13.94 compared to $13.70 a week ago.
International meat trade is a big business, and price and quality are the primary determinants for importers. Through the first two months of 2019, U.S. beef and veal imports were 0.1 percent above year ago levels while U.S. beef and veal exports were 4.2 percent (19.5 million pounds) below the same two months in 2018. Similar to the slowdown in beef exports, pork exports the first two months of the year were 4.8 percent (47.3 million pounds) below 2018 levels. Nearly 40 percent of the decline in U.S. pork exports can be attributed to a slowdown in U.S. pork headed for Japan.
Japan’s trade agreements with the European Union and the countries involved in the Comprehensive and Progressive Trans Pacific Partnership has resulted in lower tariff rates which has Japan pulling more pork from the EU and from Canada. On the beef export side, reduced exports can primarily be attributed to Hong Kong as exports to Hong Kong have practically been cut in half. However, Japan could slow down imports of U.S. beef unless a more favorable trade deal is established.
OUTLOOK: Based on Tennessee weekly auction market averages, steer prices were $1 to $4 higher compared to last week while heifer prices were steady to $2 higher. Similarly, slaughter cow prices were steady to $2 higher while slaughter bull prices were $2 to $3 higher compared to a week ago.
The cash trends from this week have been running counter to feeder cattle futures. Considering the May feeder cattle futures contract, which is now the nearby contract, the contract closed over $151 per hundredweight most of the week prior to Easter, but the price ended the current week nearly $7 lower. The August contract traded between $159 and $161 last week and early this week but then found itself near $153 to round out the week.
A very similar story is depicted in the remaining feeder cattle contracts that are being traded. The first aspect of these prices to note is the directional movement. With the two prices moving in opposite directions, convergence is starting to occur and basis is beginning to narrow which was discussed last week. The May contract has converged to the feeder cattle index which is still $8 lower than the August contract. Second, a downward movement in feeder cattle futures this week does not mean the market will continue to decline or stay at its current level. There are fundamental aspects of the market that could support the summer and fall contract months moving north of $160. However, the previous statement is not a solicitation to remain idle with a hope that the market will make a run.
Producers should be considering their marketing alternatives and the cost of achieving their marketing objective. Patience is a virtue, but failure to take action when the market is offering a favorable opportunity does not constitute patience. Failure to take action largely stems from inaptitude or fear of “failure.” Inaptitude can be addressed by studying, educating oneself, and practicing while securing a profitable price is not a “failure.” It is called staying in business.
ASK ANDREW, TN THINK TANK: I visited with a producer this week that is planning to send a load of cattle to the feedlot this summer and retain ownership. This producer has sent cattle to the feedlot before, but it has been four or five years since he owned them in the feedlot. Based on our discussion, it appears he has made changes to his breeding program with the hope of producing cattle that perform well in the feedlot and grade well on the rail. This cannot be known until the cattle are fed, slaughtered, and the data reviewed. This made me think of all the cattle producers that claim they have good cattle or in some cases great cattle. If producers really think they have such good cattle then why are they not owning them through the feedlot and selling them to a Tyson, Cargill, or National? The only way to know if a person has cattle that will meet what the market is demanding is to own the cattle through the feedlot and see how they perform. The Tennessee Beef Evaluation program is a method of doing this. Talk to a few neighbors and see if they are interested. If we can put a truckload together then we can ship them.
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 $124.55 +0.50; June $115.05 -0.33; August $112.65 -0.28; Feeder cattle –May $143.95 +0.40; August $152.85 -0.40; September $153.85 -0.48; October $154.48 -0.43; May corn closed at $3.51 up $0.04 from Thursday.
