Market Highlights: Favorable Pricing for Stocker and Cow-Calf Producers

FED CATTLE: Fed cattle traded steady to $1 lower compared to last week on a live basis. Prices on a live basis were mainly $118 to $119 while dressed prices were mainly $188 to $189.

The 5-area weighted average prices thru Thursday were $118.92 live, down $0.42 from last week and $189.04 dressed, down $0.37 from a week ago. A year ago prices were $111.06 live and $172.91 dressed.

There were few if any fireworks during the holiday cash cattle trade. Most feedlot managers appeared satisfied to only move the cattle necessary as they expect prices to maintain the status quo or strengthen in December.

It will be difficult for cattle feeders to gain enough leverage the next few weeks to push prices higher than where they have already been in the fourth quarter. It may be risky to say the fourth quarter high for live cattle has already occurred, but it would seem the only way to push prices past the $124 mark again before the end of the year is if traders on the futures market begin a buying frenzy. Cattle feeders may have to wait until spring before they are able utilize some leverage on packers.

BEEF CUTOUT: At midday Friday, the Choice cutout was $210.76 up $1.75 from Thursday and up $2.20 from last Friday. The Select cutout was $190.64 up $2.00 from Thursday and up $1.77 from last Friday. The Choice Select spread was $20.12 compared to $19.69 a week ago.

With the continued widening of the Choice Select spread, is it too early to ask if the Choice Select spread could eclipse the weekly record high spread of $33.12 set in early October 2003? The record high was set just a couple of months prior to the discovery of the first case of BSE in the United States.

The market again eclipsed the $30 spread mark in June 2017 which is probably a little fresher on the mind for many. However, the question arises again if the Choice Select spread can reach the $30 mark prior to the end of the holiday season.

There has been a rapid divergence of Choice and Select cutout prices and the expectation would be for the spread to continue widening until holiday purchasing ceases. Thus with only four more full weeks before Christmas, the spread will have to continue widening at a rapid pace.

Once holiday purchasing is complete, the spread will begin narrowing and carry through most of the winter. The strength in the Choice beef price relative to Select beef is one incentive to produce cattle that grade Choice or higher.

OUTLOOK: January is now the nearby contract for feeder cattle and the closing price on Friday is more than $8 lower than the contract high. However, it is difficult to speak too negatively about a feeder cattle price that exceeds $153 when one thinks back to prices one year ago. Cash prices in Tennessee for steers the same week in November 2016 were $25 to $30 per hundredweight lower compared to current prices.

The January feeder cattle futures contract has fairly strong support just above the $148 price point as it has been trading above this mark since the third week of September. The risk of January feeder cattle falling below $148 is relatively small at this point, but the chances of it exceeding the $162 mark again may not be that likely either.

The current situation may offer highly leveraged producers the opportunity to lock in a profit at a minimal cost. For producers that can afford to carry the market risk, it may be beneficial to sit tight and keep a close eye on the market.

At the same time producers are eyeing the first quarter feeder cattle market, many of these same producers are thinking about early spring calf prices. The strong feeder cattle market should lead to a strong calf market in late March and early April. Another aspect of the market to point out is the January feeder cattle contract has the highest price of all contracts being traded. It is followed by the August 2018 contract which is $0.50 back of January, but all contracts through September 2018 are within a $2.50 trading range.

There are several thoughts concerning the tight trading range, but the thought that is most likely to summarize the tight range is that there is a lot of uncertainty to the number of animals coming to the market. The price outlook the next several months appear favorable for cow-calf and stocker producers. Producers are encouraged to manage profits wisely as prices will soften in coming years.

ASK ANDREW, TN THINK TANK: There are several folks that think they want to be in the cattle business, and there are several folks in the business that may want to reconsider being in the business. Regardless if one is a cow-calf producer, stocker producer, or cattle feeder, a person has to understand that risks abound in every aspect of production. From the cow-calf perspective, cows may or may not get bred for a number of reasons including her fertility, the bull’s fertility, and reproductive diseases. Similarly, the calf may be born dead or die soon after birth. The calf may be born without a rectum or with a fifth limb! Stocker producers and cattle feeders are generally taking on numerous health risks that can result in morbidity or mortality. The point is there are always hidden costs in the cattle business and these costs need to be accounted for when considering raising cattle. It is a business that can be both rewarding and nerve racking.

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 –December $118.55 -0.48; February $124.58 -0.90; April $125.25 -0.70; Feeder cattle –January $153.30 +0.58; March $151.78 +0.63; April $151.58 +0.65; May $150.88 +0.78; December corn closed at $3.42 down $0.03 from Thursday.