Market Highlights: Seasonal Trends Not Holding True for Feeder Cattle
FED CATTLE: Fed cattle trade was not well established at press. Asking prices on a live basis were mainly $112 to $114 with bids from $108 to $109.
The 5-area weighted average prices thru Thursday were $107.79 live, down $0.10 from last week and $171.52 dressed, up $1.95 from a week ago. A year ago prices were $104.50 live and $166.87 dressed.
Does it even matter that packers and feedlots are slow to trade finished cattle? The October live cattle contract hit the $3 limit heading north to end the week with all of the deferred contracts in close pursuit.
This means all the contracts gained between $3 and $4 compared to the close last Friday. This jump to the upside is sure to mean a higher price for cattle feeders which should improve cattle feeding margins while packers will watch margins decline.
The reasoning and rational behind the positive price movement is not clear to this market watcher, but it will take even higher live cattle prices to net a profit on the feeder cattle being placed in feedlots. Sitting on the sidelines may not be such a bad place right now.
BEEF CUTOUT: At midday Friday, the Choice cutout was $203.88 down $0.16 from Thursday and down $3.10 from last Friday. The Select cutout was $197.86 up $0.03 from Thursday and down $0.59 from last Friday. The Choice Select spread was $6.61 compared to $9.12 a week ago.
Beef cutout prices continue to push lower as demand seasonally softens heading into the fall months. This means there is still a possibility of the Choice cutout price falling below the $200 threshold moving through the next several weeks.
Beef demand the past several years has been relatively strong based on the demand index computed by the Livestock Marketing Information Center (LMIC). Demand for beef in 2015 was at its highest level since 1991 based on LMIC calculations.
Demand softened slightly in 2016 and 2017 based on the same calculations, but remained relatively strong compared to the previous decade. Demand in 2018 appears to be rounding into form similar to the previous two years with continued strong demand that has supported beef and cattle prices through the entire production chain.
Several factors are contributing to strong beef demand with the most likely being increased income levels, consumers preference for beef, and exports. The industry will continue trying to grow beef demand.
OUTLOOK: If someone thinks they know how the cattle market is going to move then all it takes is a couple of days of the market moving against them to persuade them otherwise. In actuality, it may only take a few minutes or seconds of the market moving against a person’s position to place some doubt in a person’s mind. The truth of the matter is that attempting to market cattle on short term price fluctuations is a tough task that will likely result in a person winning half the time and losing half of the time.
From a producer marketing standpoint, it may be wiser to look at long term trends and cycles to assist in cattle marketing. However, the market does not always follow long term trends and cycles perfectly which can result in disappointment on occasion.
Additionally, week to week variability in prices can add to successes and disappointments in marketing cattle. The point of this discussion is to remind readers of the importance of maintaining flexibility in the marketing plan. Maintaining flexibility may be important moving through the fall marketing time period since no clear price direction has been established at this point.
Based on Tennessee weekly auction price averages, steer prices this week were $1 to $5 higher compared to last week while heifer prices were steady to $4 higher. This week’s price movement is working against the seasonal tendency of calf prices as are feeder cattle futures contracts.
The calf and feeder cattle market have remained strong through the late summer months and the futures market is suggesting continued strength while seasonal price trends would suggest lower prices. Prices are strong now with most of the price risk being to the downside. This means it could prove beneficial to market cattle now with a delayed delivery if possible.
For those marketing cattle across the scale, this may be the time to consider a price risk management tool such as Livestock Risk Protection insurance or the futures market. This statement is not meant to say prices are going to decline, but that prices are strong and worth protecting.
ASK ANDREW, TN THINK TANK: Many readers of this article borrow money to purchase land, livestock, crop inputs, and equipment. This week, a phone call was received that pertained to obtaining a land loan. This particular person was trying to prepare documents to take to a lending agency to support a successful loan application. More specifically, this person was using the Microsoft Excel version of the annual cow-calf budget published by the University of Tennessee Extension. This budget tool has several uses. However, in this particular case, the producer was attempting to show a profit from cow-calf production to support receiving a loan. Not in relation to this particular producer, it is very important to be honest with oneself and thorough when using a budgeting tool. It is fairly common for users of such a tool to fail to account for all costs. Budgeting tools are developed to provide a template and hopefully remind the user of costs that may not seem obvious.
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 –October $113.80 +3.00; December $118.05 +2.65; February $121.90 +2.00 Feeder cattle –September $157.43 +2.48; October $158.88 +3.48; November $158.43 +3.35; January $154.90 +3.10; September corn closed at $3.37 up $0.01 from Thursday.
