Market Highlights: Cattle Inventory Rises to 94.76 Million Head

FED CATTLE: Fed cattle traded $3 higher on a dressed basis compared to last week. Dressed prices were mainly $205 while live trade appeared set for $127 to $128.

The 5-area weighted average prices thru Thursday were $128.00 live, up $3.02 from last week and $202.51 dressed, up $1.51 from a week ago. A year ago prices were $126.80 live and $204.29 dressed.

The April live cattle contract is running more than a $9 premium to the June contract and more than a $13 premium to the August contract. At the same time, the finished cattle market is trading between a negative $1 to negative $2 basis compared to the April contract.

Considering this scenario, there is a large price gap to fill between now and the June contract. As likely or as unlikely as it may seem that finished cattle prices will decline $9 between April and June, the market could actually have more swing than what is being represented by futures. Steer slaughter the first couple of months of 2019 has been below previous year levels which likely means there are more animals waiting in the balance the next few months.

BEEF CUTOUT: At midday Friday, the Choice cutout was $220.97 up $1.02 from Thursday and up $1.58 from last Friday. The Select cutout was $216.69 up $1.42 from Thursday and up $4.50 from last Friday. The Choice Select spread was $4.28 compared to $7.20 a week ago.

Commercial beef production in 2018 totaled 26.87 billion pounds which is an increase of 680 million pounds (+2.6%) compared to 2017. Similarly, pork production in 2018 increased 731 million pounds (2.9%) compared to the previous year and totaled 26.31 billion pounds.

These production values are expected to increase again in 2019 with the expected increase in slaughter levels. The question is how will the market react to increased red meat production?

The hope is that domestic demand remains strong and that favorable trade agreements are established to continue moving beef and pork internationally. While the markets are at work, packers will be doing their best to manage production in a way to support wholesale beef prices.

From the beef perspective, middle meats continue to provide the underlying support for the Choice beef cutout while end cuts, especially the chuck, appear sluggish. How much gusto the spring market has will be a good indicator for what the rest of the year has in store.

OUTLOOK: Based on Tennessee weekly auction market averages, steer prices were unevenly steady compared to last week while heifer prices were $1 to $3 higher than a week ago. Slaughter cow prices were $1 to $3 higher this week compared to last week while slaughter bull prices were $2 higher.

The long awaited January 1, 2019 Cattle Inventory report for the United States cattle industry was released on Feb. 28. The survey of cattle producers indicates all cattle and calves as of January 1 totaled 94.76 million head which is a 0.5 percent increase from one year ago. Beef cow inventory increased nearly 1.0 percent to 31.77 million head compared to 31.47 million head in 2018. Alternatively, dairy cow inventory declined 0.8 percent compared to a year ago and totaled 9.35 million head. Heifers held as beef cow replacements registered at 5.92 million head which is a 3.0 percent decline from 2018.

The report is very much in line with general expectations for all classes of cattle. The nearly 300,000 head year-over-year increase in beef cow inventory demonstrates that cattle prices remain strong enough for producers to continue expanding the herd, but that producers are not nearly as optimistic as they were a few years ago. The 183,300 head year-over-year decline in beef heifers retained for replacement is an indication that beef herd growth will continue to slow moving through 2019.

The next ten months will be very telling for beef cattle producers as industry participants will be keeping an eye on beef cow and heifer slaughter which could very well result in the beef cow herd staying the same size moving into next year. Another key value to make note of is the 2018 calf crop estimate of 36.4 million head which is 644,500 head larger than the 2017 calf crop estimate. This provides some information on the increased number of animals moving into the slaughter mix. The simple explanation is a lot more beef will be produced in the United States in 2019 compared to 2018. Domestic beef demand and exports will determine cattle prices barring any unforeseen circumstances.

ASK ANDREW, TN THINK TANK: A couple of questions have come up this week about price risk management tools and how certain tools can be used in cattle operations. The simple answer to this question is there is Livestock Risk Protection insurance for any size operation, futures contracts for operations that can either fill a 50,000 pound feeder cattle contract or a 40,000 pound live cattle contract, and then there are forward contracts if they can be had. For small cattle producers, there are no good price risk management tools worth using or worth the cost of the insurance. That does not mean there are not some local opportunities when working with an individual, but those opportunities are few and far between. Even though futures and options are not conducive to the little man, it is still advantageous for a producer to educate him or herself on the subject. This information may become useful when finding alternative methods to price cattle.

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 –April $129.55 -0.30; June $120.43 +0.28; August $116.28 +0.38; Feeder cattle –March $141.23 -1.65; April $145.05 -1.10; May $146.53 -0.73; August $151.40 -0.20; March corn closed at $3.64 up $0.02 from Thursday.