Market Highlights: Beef Price Slump Hurts Cattle Prices
FED CATTLE: Fed cattle traded $1 to $2 lower on a live basis compared to last week. Prices on a live basis were mainly $117 to $118 while dressed trade was mainly $187 to $188.
The 5-area weighted average prices thru Thursday were $117.52 live, down $1.13 from last week and $187.87 dressed, down $2.08 from a week ago. A year ago prices were $120.38 live and $190.66 dressed.
Cattle feeders have taken a significant hit from a sale price standpoint the past month which has many of them day dreaming about days past when margins easily exceeded $500 per head. However, many of those feedlots continue to market cattle that are returning a little better than $200 per head. It may be difficult to feel sorry for a segment of the industry that has fallen on extraordinarily good times, but it was not that long ago when feedlots were bleeding red on cattle closeouts.
Margins will continue to tighten for cattle feeders as they will soon be harvesting animals that were purchased on a rising feeder cattle market and are now marketing cattle on a declining market. The slope is not expected to get to slippery but one never knows.
BEEF CUTOUT: At midday Friday, the Choice cutout was $218.98 down $1.07 from Thursday and down $6.26 from last Friday. The Select cutout was $203.56 down $0.20 from Thursday and down $5.21 from last Friday. The Choice Select spread was $15.42 compared to $16.47 a week ago.
The mid-summer beef slump is throwing punches hard and fast to packers as beef prices continue to trend in a southerly direction. The price decline has yet to turn margins negative because packers continue to purchase cattle for lower prices each week, and wholesale beef prices are strong. However, the softening prices do not mean there is no concern about the future.
Wholesale beef prices are likely to continue slipping the next few weeks as Labor Day is the last remaining summer grilling holiday. Purchases for Labor Day will not support beef prices for at least a month as the holiday weekend is still eight weeks away. Packers will work diligently to maintain price levels the next several weeks, but they will continue to harvest a large number of animals which will keep beef production elevated and put pressure on prices. Many had hoped the opening of the Chinese market to U.S. beef exports would support prices, but this is a long shot as only a small percentage of the current U.S. beef production qualifies for export to China.
OUTLOOK: Tennessee weekly auction markets were not reported this week due to the Independence Day holiday. Thus, there are no price trends to report relative to the previous week’s prices. Alternatively, futures market trade was active every day but July 4th. Feeder cattle futures prices continue to trade in a narrow range at the bottom of a broader range that dates back to the end of April. Using the August contract for feeder cattle, the price has ranged from about $140 to $160 since the end of April, but the trading range has narrowed to $142 to $150 since the middle of June.
Similar trading patterns are evident in the deferred fall contracts. Maybe the most interesting aspect to note is prices on deferred contracts are relatively strong compared to the August contract. The October and November feeder cattle futures contract prices traded $1 and $2 lower than the August contract respectively which is stronger than the seasonal trend. This means the futures market is expecting some strength in the market this fall for cattle ready to enter the feedlot.
Prices seem to be well supported at the bottom of the aforementioned trading range which would suggest there is some upside potential for feeder cattle moving through the summer and into early fall. This may result in yearling cattle prices being strong relative to lighter weight cattle at the start of the fall calf run. This occurrence may result in some feedlots looking to put more lightweight animals on feed, especially if feed costs continue to be low.
Therefore, the strong feeder cattle market will support prices for freshly weaned lightweight cattle in the October and November time frame. This could force stocker operators to pay a little more for animals than they were intending to this fall. This does not necessarily mean cow-calf producers should market freshly weaned calves nor does it mean stocker producers are going to pay outlandish prices for cattle this fall. Due diligence in studying the market is integral the next few months as the fall marketing time frame approaches. Opportunities will present themselves on the purchase and marketing side.
ASK ANDREW, TN THINK TANK: I often receive questions from county agents, cattle producers, and other livestock industry professionals concerning historical prices, cattle inventory numbers, and other similar data. I received such a question this week from a Union County resident that is helping her children with a project concerning beef cattle in Tennessee. My understanding is this project is meant to promote and educate the public concerning beef production within our great state. I enjoy fielding these requests and trying to assist folks in these endeavors because it allows me the opportunity to educate one or two people about a specific subject and then they often carry this information to larger groups of people which has a much farther reaching effect than I can have individually. If there are ever any needs among readers then let me know, and I will see if I can be of assistance.
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 $114.78 -0.18; October $113.83 -0.05; December $114.60 +0.05; Feeder cattle –August $145.03 +0.40; September $145.03 +0.25; October $143.93 +0.10; November $142.93 -0.08; July corn closed at $3.82 up $0.02 from Thursday.
