Market Highlights: Dog Days Not Hurting Cattle Prices
FED CATTLE: Fed cattle traded $2 higher on a live basis compared to last week. Prices on a live basis were mainly $119 to $121 while dressed trade was mainly $189 to $191.
The 5-area weighted average prices thru Thursday were $119.48 live, up $1.96 from last week and $190.08 dressed, down $2.21 from a week ago. A year ago prices were $117.00 live and $187.42 dressed.
With a shock of good fortune feedlot managers were able to get a few more dollars out of cattle this week. It would be an overstatement to say the price increase this week was a surprise, but a steady price compared to last week was the more likely expectation.
The dog days of summer generally result in fed cattle prices softening during late summer, but the market may be indicating the rapid decline in prices the past few weeks was a little overzealous. Traders in the futures market have no clue where prices are going as most contracts from August through April have been trading within a dollar of each other. Live cattle prices could see further softening, but downside risk is minimal. Prices will firm in late fall and heading into winter.
BEEF CUTOUT: At midday Friday, the Choice cutout was $209.25 down $0.60 from Thursday and down $8.73 from last Friday. The Select cutout was $195.40 down $1.86 from Thursday and down $8.16 from last Friday. The Choice Select spread was $13.85 compared to $15.42 a week ago.
The softening of wholesale beef prices continued this week as middle meats continue to collapse following the major summer grilling holidays. Wholesale middle meat prices have declined 25 to 30 percent since their summer peak price. The seasonal trend is for middle meat prices to continue losing ground through the summer and early fall months.
Alternatively, end meats have been less of a detriment to wholesale beef prices. Most end meat cuts have lost ground relative to early summer prices, but they are a primary source of support for wholesale prices. The Choice cutout price has declined $40 in four weeks while the Select cutout price has declined $24 over the same time period.
This seems like a huge price decline that would negatively impact packer margins. Such a downturn has negatively impacted packer margins, but packers are now paying $23 less per hundredweight on a dressed basis for live cattle than they did four weeks ago. The decline in finished cattle prices has provided significant cushion for packers.
OUTLOOK: Weekly auction market report information was back in play this week for Tennessee livestock markets. Steers were $3 to $7 lower than prices two weeks ago while heifer prices were $1 to $6 lower than the last week of June. The price decline on weekly auction markets over the past two weeks seem to have come during a transition time period as feeder cattle futures have gained more than $9 this week. The market appears to be readying itself for seasonal strength through the back half of July and the early part of August.
The market is offering producers a favorable opportunity to market animals in the near term. Even if cattle are not ready to leave the farm, producers should consider selling them for a future delivery date as the upside potential may be small for cattle that will be marketed between now and the end of November.
From a stocker and backgrounding standpoint, the value of gain on recently purchased animals reaches as high as $1.23 per pound for cattle that will leave the farm in November. Such a high value of gain provides significant room for error on the sale price and achieving profits.
This same value demonstrates great potential for backgrounding home raised animals. Looking a little farther into the future, producers should already be considering the marketing and purchasing of this year’s spring born calf crop. For cow-calf producers, the market continues to look favorable to growing those animals through the first of the year.
Similarly, from a stocker standpoint, the value of gain is currently just shy of $1.20 for animals purchased in November and carried through April. It is difficult to look this far into the future and guarantee a value of gain. However, the market looks to currently be offering a favorable opportunity for adding weight at home.
Producers should stay tuned to the current situation and stay apprised of market changes. Shifts in value of gain can occur quickly, and producers need to be prepared to pull the trigger when expected profit margins are strong.
ASK ANDREW, TN THINK TANK: A couple of really good questions were asked this week. The first question was in relation to shrink (weight loss) while cattle are being transported from the farm to an auction market while the second question (will be answered next week) was in relation to market reports and not all cattle and prices being reported. In relation to shrink, it is normal for cattle to lose weight when being gathered, sorted, hauled, and stressed in any way. Shrink increases as the amount of time off feed and water increases and as stress increases. Freshly weaned cattle tend to have greater shrink than preconditioned cattle. Preconditioned cattle can easily shrink 4 to 8 percent on a short 30 to 60 minute haul while freshly weaned calves may shrink 10 to 12 percent before crossing the scales. Shrink is also impacted by temperature. Higher temperatures generally result in increased shrink. Producers should attempt to manage and reduce shrink during marketing. Shrink is inevitable during sorting and hauling but there are methods to reduce shrink.
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 $117.80 +0.38; October $118.58 +0.75; December $119.00 +0.78; Feeder cattle –August $154.28 +1.25; September $154.08 +1.10; October $152.75 +1.25; November $150.85 +1.10; July corn closed at $3.65 up $0.04 from Thursday.
