Market Highlights: Drought Starting to Impact Cattle Producers
FED CATTLE: Fed cattle trade was not well established at press. Asking prices on a live basis were mainly $119 while asking prices on a dressed basis were mainly $190.
The 5-area weighted average prices thru Thursday were $117.36 live, down $0.11 from last week and $184.39 dressed, down $2.64 from a week ago. A year ago prices were $110.23 live and $170.31 dressed.
Cattle feeders and packers were slow to trade cattle this week and that could be to the detriment of the packer as December live cattle futures made a strong forward jump on Friday. The strong move on the futures market had cattle feeders asking higher prices compared to the week before and packers had little recourse.
The positive price movement this week should not be considered a shining star for cattle feeders as the jostling will continue. It is difficult to determine which way live cattle prices are preparing to head. A breakout to the upside or the downside would be a little surprising so the expectation is that finished cattle will trade sideways during the holiday shortened weeks. January will provide a little more direction.
BEEF CUTOUT: At midday Friday, the Choice cutout was $201.79 up $0.75 from Thursday and down $3.76 from last Friday. The Select cutout was $183.61 down $0.08 from Thursday and down $2.14 from last Friday. The Choice Select spread was $18.18 compared to $19.80 a week ago.
As the holiday beef buying days have been counting down, there has been no reason for beef packers to get excited as they have not been able to push wholesale beef prices higher. The holiday beef buying period has failed to live up to expectations for some while others had probably anticipated the difficulty of moving increased production at higher prices.
The price movement the past few weeks resembles the beef market slipping into the winter trend a touch earlier than normal which will impact packer margins. Interest in loin and rib cuts have provided support for cutout prices, but middle meats will not be able to hold the pace after the holidays have passed. It will then be up to the end meats such as the chuck and round to support the composite cutout price.
Slightly changing gears, fresh 90 percent lean beef is about $15 per hundred higher than one year ago which has helped support slaughter cow prices this fall. Similarly, 50 percent lean beef prices are $15 to $20 higher than last year though they continue to struggle.
OUTLOOK: There was little to no change in the calf and feeder cattle markets this week compared to a week ago based on Tennessee weekly auction market reports and futures market contracts. Feeder cattle futures have been trading in less than a $4 range for eight consecutive days on the January contract. The tight trading range may signify a number of situations considering the crippling decline since the beginning of November.
January feeder cattle futures have declined nearly $15 in a month and a half. This downward price movement has most likely been a result of following the live cattle market. However, traders seem to be exhausted as the bears have not been able to force the market lower this week.
Feeder cattle cash prices in the country have softened during the same time period the feeder cattle futures have softened, but cash prices have not declined as quickly or to the same extent as futures. This seems to be a case where fundamental cattle trade and technical trade do not align.
On the other hand, a major fundamental situation that has been slowly creeping into the Southern Plains and the Southeast is drought. The drought area continues to carry into the Norther Plains and Montana. The drought situation that has overcome much of cow-calf and stocker grazing country is forcing producers into tough situations.
Many stocker cattle are purchased based on currently available forage and expected forage. The currently available forage is beginning to wane and the expectation of forage is near zero if precipitation does not fall in the near term. This will continue to result in softer calf prices as feedlots fill pens with cattle that may have to come off winter annuals earlier than expected.
Similarly, many of the stocker producers in the Southern Plains will not be active in purchasing calves due to reduced forage production. The market and Mother Nature are working against cattle producers at this time. A good rain or two could alleviate much of the distress.
ASK ANDREW, TN THINK TANK: This week has been interesting to say the least with questions ranging from sending cattle to the feedlot to running a stocker operation to registered operations. The one key element that has been part of each of these conversations is knowing and understanding the risks involved in the respective stage of production. Every beef cattle operation deals with market risk in cattle prices going down and some deal with the risk of cattle prices going up. Another risk faced by most operations is health risks. The specific health risks vary across cow-calf, stocker, feedlot, and seedstock producer but health risks are always present. This discussion could go on for a while, but the point is that producers and potential producers should evaluate cattle production alternatives and determine which risks they are better able to manage. Going through this process will likely result in a more positive outcome.
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 $118.90 +2.63; February $121.03 +1.88; April $122.15 +1.85; Feeder cattle –January $147.75 +1.50; March $145.55 +1.20; April $145.93 +1.23; May $145.65 +1.30; December corn closed at $3.48 down $0.01 from Thursday.
