Market Highlights: Cattle Futures Plummet Since November
FED CATTLE: Fed cattle traded $3 to $4 lower compared to last week on a live basis. Prices on a live basis were mainly $117 while dressed prices were mainly $186 to $187.The 5-area weighted average prices thru Thursday were $117.47 live, down $3.21 from last week and $187.03 dressed, down $3.02 from a week ago. A year ago prices were $108.89 live and $169.96 dressed.
The December live cattle futures price has plummeted since early November losing nearly $12 per hundredweight. Fortunately, the cash price for finished cattle has not fallen as dramatically.
Live cattle futures have certainly put a damper on cash prices the past couple of weeks but cash and futures have not been in full parity during the decline as cash prices have only declined $6 per hundredweight over the same time period.
Cattle feeders do not have to be happy about declining prices, but they can take some comfort in prices not completely following technical trade in the futures market which means cash trade is still taking into account the fundamentals of the market.
BEEF CUTOUT: At midday Friday, the Choice cutout was $205.55 up $0.47 from Thursday and down $0.60 from last Friday. The Select cutout was $185.75 up $1.92 from Thursday and up $2.17 from last Friday. The Choice Select spread was $19.80 compared to $22.57 a week ago.
Choice beef buyers did little to change the market from one week ago, but Select beef buyers appeared to be on the move this week. There is very little time left for Choice prices to find additional support before the Christmas and New Year holidays as many retailers, restaurants and food service providers have likely made most of their purchases for holiday dining. This does not mean all buyers have completed their purchasing, but it is unlikely there are so many short bought in the market place that Choice beef will surge in the next two weeks.
Alternatively, it appears some beef buyers are beginning to secure inventory for Select beef needs for the winter months. The Choice Select spread will begin narrowing and may do so at a rapid pace immediately following Christmas.
The beef market continues to experience strong carcass grades, but much of the premium in the Choice cutout will be bid away as consumers begin focusing on end meats. This situation will likely lead to Choice Select spread under $1 in February.
OUTLOOK: The cash calf and feeder cattle market took a tumble this week as feeder cattle futures followed live cattle futures during their price decline. The January feeder cattle futures contract price declined a little more than $8 since the end of November. The futures price decline led calf and feeder steer prices to decline $3 to $9 compared to one week ago based on Tennessee weekly auction market averages while feeder heifer prices declined $3 to $8.
The sudden drop in prices may have caught a few producers off guard that have been holding on to calves due to abundant grass and hay resources. However, now is not the time to panic and go in a selling frenzy. Producers who weaned calves for the purpose of adding weight should continue to do so while keeping an eye on the market.
The sudden price downturn is likely to reverse and move back to the trading range that has been consistent since the middle of September. Additionally, prices for lightweight calves tend to strengthen after the first of the year.
Similarly, feeder cattle prices generally find support in January though they have been supported most of the fourth quarter of 2017. It may also be important for producers to realize that it may be difficult for calf and feeder cattle prices to outpace the prices realized the last few months of 2017.
Fall calf and feeder cattle prices were supported throughout the fall marketing time period which is rare. However, the market simply followed the live cattle market which it is expected to do in the coming months. Thus, as live cattle prices begin to escalate late in the first quarter of 2018 so will feeder cattle prices. Calf prices toward the end of the first quarter will be supported by the feeder cattle market and abundant spring forage.
On another note, slaughter cow prices took a hit this week as prices were $2 to $5 lower based on Tennessee weekly auction averages. The decline eliminated last week’s gains plus some. Slaughter cow prices should begin to slowly gain some footing from January through May.
ASK ANDREW, TN THINK TANK: This week a producer who regularly preconditions home raised cattle asked a question concerning how hard to push cattle with commercial or commodity feeds. Some producers would encourage pushing them fairly hard while others may encourage a slower growth rate. However, the recommendation from a profitability standpoint is to compare cost of gain and value of gain. If the value of gain is higher than the cost of gain from commodity feeds then it is more profitable to push cattle to gain more weight in a shorter period of time. Alternatively, if the cost of gain exceeds value of gain then additional feed may not be the answer to increasing returns. The price slide and feed costs are major determinants in this evaluation. However, it is also important to consider the flesh score of feeder cattle as they are growing. Fleshy cattle will be discounted because the feedlot would prefer to put on the fat toward the end of feeding.
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 $115.58 -0.05; February $118.30 -0.38; April $120.20 +0.10; Feeder cattle –January $145.23 -1.10; March $143.33 -1.18; April $143.65 -0.98; May $143.73 -0.73; December corn closed at $3.40 up $0.01 from Thursday.
