Market Highlights: Only Cattle Price Certainty is Uncertainty
FED CATTLE: Fed cattle traded $2 lower compared to last week on a live basis. Prices on a live basis were primarily $104 to $105 while prices on a dressed basis were mainly $164 to $166.The 5-area weighted average prices thru Thursday were $104.67 live, down $2.11 from last week and $165.65 dressed, down $4.09 from a week ago. A year ago prices were $109.92 live and $174.03 dressed.
Cattle feeders could not put a halt on the live cattle price skid this week as they were the losers on this week’s market. The positive basis that held through much of the year has disappeared putting a further damper on cattle feeding margins. With so many weeks of con stant price declines, it is becoming difficult for cattle feeders to be optimistic about the next week’s market.
The dismal outlook may remain through October as the October live cattle futures price is trading just above $105 per hundredweight. Alternatively, the December contract has a hint of promise as it is trading over the $109 mark. It appears cattle feeders may have to continue weathering the storm for a little while longer.
BEEF CUTOUT: At midday Friday, the Choice cutout was $191.57 down $0.34 from Thursday and up $0.05 from last Friday. The Select cutout was $191.03 down $0.31 from Thursday and up $1.58 from last Friday. The Choice Select spread was $0.54 compared to $2.07 a week ago.
Packers were able to plug all the holes in the dam that is the wholesale beef market this week as they showed signs of steadying for the first time since the middle of June. The Choice cutout price has declined about $58 per hundredweight in an eleven week period while the Select cutout price has lost nearly $29 over the same time period. During the wholesale beef price decline, the Choice Select spread essentially moved from a historically wide spread to no spread at all. The Choice Select spread typically narrows this time of year due to demand factors, but the supply side has provided a strong case for a narrowing spread. Beef has consistently graded over 70 percent Choice through 2017 with recent weeks experiencing 74 percent Choice. This compares to the five year average during August being closer to 64 percent grading Choice. As the percent of beef grading Prime or Choice increases, the quantity of beef grading Select is on the decline. The balance of beef grading has resulted in a narrowing of the spread between Choice and Select grade beef.
OUTLOOK: Good fortunes were found by folks marketing calves and feeder cattle this week compared to the previous week. Steer prices were $3 to $5 higher than last week while heifer prices were $3 to $7 higher than a week ago. The futures market is leading the way as prices have lacked stability the last six weeks. Though prices were higher this week than last on the cash market and the futures market, prices on the first day of September were nearly $7 lower than the first day of August in both the cash feeder cattle market and on the futures market.
One could say the feeder cattle market has held up well through the fed cattle market decline as well as holding its own against strong feeder cattle supplies. It would appear cattle feeders have been betting on the come all summer, and they are not ready to stop betting on the come just yet. This simply means cattle feeders are expecting or at a minimum hoping the fed cattle market will bounce back and do so strongly. This is great news for folks marketing calves and feeder cattle, but if the finished cattle market does not turn soon then it is likely heavy discounts will be on the way in the feeder cattle market. This analysis is not taking into account the seasonal price decline in the calf market during the fall months which is all but certain to occur.
As one tries to look into the crystal ball of beef cattle prices, the one certainty is uncertainty. In prognosticating prices, one has to determine the direction of the price movement and the magnitude of the price movement. The most likely direction for prices to go in the next few months is down, but then one would have to know by how much. For lightweight calves, the price decline will likely be 4 to 8 percent from the August average price to the November average price. This will result in the November monthly average price being $6 to $12 per hundredweight lower than the August average price for 500 to 600 pound steers. Similarly, feeder cattle prices will likely decline 3 to 8 percent over the next three months. Producers should take this into consideration when scheduling marketings.
ASK ANDREW, TN THINK TANK: There have been several questions concerning how the recent hurricane will impact beef markets. It is difficult to know the full impact it will have, but there are several known impacts. The hurricane rolled through a large portion of eastern Texas resulting in more than one million head of cattle having buckets of water poured on them. Given the time of year and that eastern Texas is a large cow-calf producing region, it is likely most of the calves were still in the pasture with the cow herd. Additionally, several large port areas in Texas and Louisiana have been negatively impacted by the large quantities of rainfall. This could slow down exports of several agricultural goods including beef. One positive note is that the storm did not hit any major cattle feeding regions or any major packing facilities. Other than a slow-down in exports, cattle feeders and packers will continue moving cattle.
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 $105.15 -0.25; December $109.48 +0.38; February $112.93 +0.58; Feeder cattle –September $142.73 +0.15; October $143.55 +0.25; November $143.95 +0.28; January $141.35 +0.85; September corn closed at $3.40 down $0.02 from Thursday.
