Market Highlights: Cattle Markets Softer Now, Potential for Rally
FED CATTLE: Fed cattle trade was not well established at press. Bid prices on a live basis were mainly $126 with asking prices near $129 on a live basis and $202 on dressed basis.
The 5-area weighted average prices thru Thursday were $127.00 live, up $1.09 from last week and $201.33 dressed, up $1.43 from a week ago. A year ago prices were $119.75 live and $190.06 dressed.
Fed cattle trade was at a standstill most of the week as packers found it difficult to bid up cattle prices while wholesale beef prices floundered. Alternatively, cattle feeders were not willing to lower ask prices as February live cattle futures traded fairly steady most of the week.
What is working against cattle feeders is the steep decline in deferred live cattle futures. As an example, April live cattle declined $1.76 from Monday’s close thru Thursday’s close. Additionally, April was trading at more than a $2.50 discount to February while June was trading with more than an $8 discount to April. These steep discounts on the futures market should keep cattle moving through the pens and to packers which should keep cattle weights manageable.
BEEF CUTOUT: At midday Friday, the Choice cutout was $206.50 down $2.03 from Thursday and down $2.98 from last Friday. The Select cutout was $203.03 down $0.76 from Thursday and down $1.01 from last Friday. The Choice Select spread was $3.47 compared to $5.44 a week ago.
Light boxed beef movement has allowed packers to keep wholesale beef prices elevated the first six weeks of the year, but a more seasonal tone came into the Thursday and Friday market. February beef demand is always weak relative to most other months and that weakness is beginning to show up in wholesale beef prices.
The Choice and Select cutouts both remain above the $200 mark. This is important from the standpoint that the $200 mark was a major resistance point prior to the trough of cattle inventory in the current cattle cycle. Since that resistance was broken, the same price point has provided significant support.
Choice and Select cutouts could dip below the invisible support line, but the risk of a total collapse is small. The Choice Select spread has once again narrowed and the spread is expected to continue narrowing through February as more focus is placed on end meats rather than middle meats. The Choice cutout will not see significant support until the second half of March or early April.
OUTLOOK: Sometimes it seems as if the same thing is written every week in this publication, but reporting the market and providing analysis is sometimes repetitive. The feeder cattle futures price appears to be fairly strong relative to where it finished 2017 and where it started 2018, but most of the price movement this week led to softer prices.
The futures market has started to price in a more seasonal price trend the first three quarters of the year, but it currently has a fourth quarter price that is stronger than the seasonal tendency. Most feeder cattle contracts are within $10 per hundredweight of their contract high which occurred in early November 2017.
There is potential for the market to move higher, but it will be difficult for prices to exceed the price achieved during the early November time period. In other words, now may be a time to offset some price risk on cattle being sold in the second half of the year and more importantly on cattle being sold in the fourth quarter. Locking in a price may not be the best alternative as the market could gain a few dollars. Thus, setting a floor price may be a more appropriate route.
The cattle herd is larger than it was one year ago and the calf crop in 2018 will be larger than it was in 2017. With that being said, the expectation is for fourth quarter prices to be softer than second and third quarter prices. The current market is offering just as strong or stronger prices in October and November as in August and September.
Stepping back into the present, calf and feeder cattle prices at Tennessee weekly auction markets remain steady to stronger compared to last week. Steer prices were steady to $3 higher than last week while heifer prices were $1 to $4 higher compared to a week ago.
The current market has provided producers ample time to market cattle carried through the early winter and to add weight. Producers with calves that will be ready to wean in the next couple of months should continue to benefit from grass fever in March and early April. This coming week’s temperatures should result in a little green up. If it does not green any then we may be finding out how bad the freeze actually hit forage in January.
ASK ANDREW, TN THINK TANK: There was an opportunity this week to discuss hay and forage outlook with a group of economists across the Southeast and Southern Plains. Many of these economists focus their professional careers on livestock production or row crop production. A popular question was related to how the low December 1 hay stocks will play into the forage market in 2018. Hay production in 2017 was fairly strong in most parts of the United States. The Northern Plains and into Montana is where production was lacking due to persistent drought conditions. The issues that have led to increased hay disappearance have been flooding in Texas and extremely cold temperatures that have resulted in increased hay usage. To answer the question, hay is a regional product for the most part. Prices in a region are not likely to be greatly influenced by shortages in regions a long distance away. Additionally, the 2018 market will hinge largely on production moving into spring and summer. If production is negatively influenced this year, prices are sure to go up given the reduced stocks from last year. It may be time to fill the hay barn and do it early.
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 –February $126.53 +0.75; April $123.63 -0.10; June $115.43 -0.10; Feeder cattle –March $146.20 -1.05; April $147.75 -0.90; May $148.33 -0.60; August $151.00 -0.70; March corn closed at $3.62 down $0.04 from Thursday.
