Market Highlights: More Cattle on Feed, Again

FED CATTLE: Fed cattle traded $2 lower than last week on a live basis. Prices on a live basis were mainly $127 to $128 while dressed prices were mainly $204 to $205.

The 5-area weighted average prices thru Thursday were $128.15 live, down $0.14 from last week and $204.45 dressed, up $2.45 from a week ago. A year ago prices were $124.38 live and $195.92 dressed.

There was a hint of weakness in the finished cattle markets as cattle traded lower than the previous week. It would appear traders of live cattle futures are not as bullish as they were last week which resulted in cash cattle prices softening.

There is little doubt cattle feeders are less than thrilled with the lower prices, but cattle feeding margins remain strong. The strong margins and a basis near zero should keep cattle feeders interested in marketing cattle.

Similarly, the strong feeding margins should keep cattle feeders active in placing cattle. Looking forward a few weeks, it may be difficult to push finished cattle prices higher as the seasonal tendency would indicate due to the current strength. A steady market would be received well.

BEEF CUTOUT: At midday Friday, the Choice cutout was $218.08 down $0.32 from Thursday and up $8.88 from last Friday. The Select cutout was $212.89 up $0.83 from Thursday and up $7.73 from last Friday. The Choice Select spread was $5.19 compared to $4.04 a week ago.

Packers have been consistently faced with tighter margins the past couple of months as wholesale beef prices have floundered while cattle prices escalated. As margins tightened, packers were looking for any method to push spot market sales to higher price levels. They must have found a solution as boxed beef prices found traction during a traditionally sluggish time period. There are certainly retailers who are purchasing product for the spring months, but those sales are probably not as strong as what the current spot market price reflects.

Aside from packers attempting to push beef prices higher, they have also been trying to find ways to pay less for finished cattle. This too was a success this week with lower finished cattle prices. Thus, lower input costs and higher output prices have allowed packers to experience improved margins.

The values to keep an eye on that will have the greatest influence on beef prices are beef production, imports, and exports. Production is sure to increase, while import and export levels are less certain.

OUTLOOK: The feeder cattle market had been trading with a full head of steam since early January. However, feeder cattle futures showed a hiccup starting on Wednesday. It is difficult to determine if the lower prices late this week are leading the market to lower prices or if it is a minor correction in the market.

Despite the turn in the futures market on Friday, prices on Tennessee weekly auctions were stronger than the prior week. Steer prices in Tennessee were steady to $5 higher while heifer prices were $1 to $5 higher than last week.

The expectation moving through the spring is for strength in the calf market as the seasonal tendency for freshly weaned calves is stronger prices. Though there is an expectation for calf prices to continue increasing through March and maybe into early April due to grass fever, weakness in the feeder cattle market can and will quickly dampen buyers’ attitudes.

The current feeder cattle contract price movement may bring a call to action for producers looking to market animals in the near term. With the sudden dip in prices, it could mean producers should be marketing animals now if the expectation is for prices to continue declining.

Based on the March feeder cattle contract, there appears to be support near the $145 level and even stronger price support at the $140 price. Similarly, the August feeder cattle contract has strong support at the $148 and $143 price levels. The point being made here is that downside price risk does exist in the feeder cattle market. However, it appears the downside price risk is limited to price levels that are still fairly strong.

The slaughter cow market is showing a few signs of life heading into the late winter and early spring. One might say the slaughter cow market has underperformed up to this point, but there remains time for prices to continue improving in the late spring months. Alternatively, slaughter cow prices in the fall of 2018 are expected to struggle.

The February cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of February 1, 2018 totaled 11.63 million head, up 7.9% compared to a year ago, with the pre-report estimate average expecting an increase of 7.2%. January placements in feedlots totaled 2.07 million head, up 4.4% from a year ago with the pre-report estimate average expecting steady placements. January marketing’s totaled 1.86 million head up 6.1% from 2017 with pre-report estimates expecting marketings up 6.1%. Placements on feed by weight: under 700 pounds no change, 700 to 799 pounds up 6.8%, and 800 pounds and over up 8.2%.

ASK ANDREW, TN THINK TANK: Due to a focus on forage risk management programming, several questions have been asked concerning the use of warm season grasses in a forage system and what percentage of pasture should be established in warm season grasses. The percentage of pasture that should be in warm season grasses depends on the type of operation, calving season timing, and if the pasture is intended for grazing or hay production. Based on experiences and expectations, most people would recommend 20 to 30 percent of pasture to be in a warm season grass for producers in the fescue belt. However, there is really no direct research to support this recommendation. It does seem apparent that a warm season grass can benefit producers in the fescue belt. Thus, producers could start by adding a few acres and see how that changes the operation. If there is an improvement for the operation then producers may desire to add a few more acres.

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 –February $128.00 -0.35; April $124.85 -0.53; June $116.80 +0.00; Feeder cattle –March $146.00 +0.00; April $148.50 +0.43; May $149.38 +0.25; August $152.43 -0.13; March corn closed at $3.66 down $0.01 from Thursday.