FED CATTLE: Fed cattle traded $6 to $7 lower on a live basis compared to a week ago. Live prices were mainly $128 to $130 while dressed trade occurred between $200 and $208. The 5-area weighted average prices thru Thursday were $128.47 live, down $6.60 from last week and $202.47 dressed, down $10.78 from a week ago. A year ago prices were $153.12 live and $242.00 dressed. Fed cattle prices have declined about $24 per hundredweight on a live basis and $36 per hundredweight on a dressed basis the past six weeks which translates into revenues more than $300 lower per head than they were in the middle of August. Furthermore, current week prices are about 16 percent lower than prices for the same week one year ago. Reason and logic in a normal year would indicate prices are near the bottom, but the market could continue to act contra-seasonally and dip further. If this is the bottom then the average upswing would be expected to be about 13 percent which would have live cattle trading near $145 late in the year. However, the large number of heavy end cattle on feed is expected to put a damper on such a positive price swing.
BEEF CUTOUT: At midday Friday, the Choice cutout was $213.45 down $1.40 from Thursday and down $13.74 from last Friday. The Select cutout was $210.68 down $0.94 from Thursday and down $9.05 from last Friday. The Choice Select spread was $2.77 compared to $7.46 a week ago. Packers are struggling to move beef as record retail beef prices weigh on consumers relative to the lower priced meat protein alternatives. The Choice cutout price has declined nearly 13 percent in the past 5 weeks while the Select cutout price has declined more than 10 percent over the same time period. The beef market is being saddled with losses due to demand being soft and beef production on the increase.
Feedlots are trying to move large numbers of heavy cattle through the system which has depressed live cattle price which in turn has depressed beef cutout prices. The average dressed weight of steers from one week ago was 963 pounds which is 37 pounds heavier than the same week one year ago. These heavier weights put more beef on the market per animal harvested and it is expected that these heavier cattle will persist for several more weeks. The beef cutout will continue to be pressured until the heavy end cattle are pushed through the system, and it is not likely the price will recover very quickly.
OUTLOOK: Tennessee weekly auction market prices took a severe blow this week across all classes of cattle. Most weight classes of steers lost $80 to $100 per head compared to a week ago while heifers lost $70 to $80 per head. The slaughter cow and bull markets have not been immune to the downward price movements as they lost between $30 and $100 per head compared to last week’s market. All classes of cattle tend to come under pressure during the fall months. Calf prices are pressured during the fall months due to the large number of spring born calves that are being marketed during the time period and the reduced availability of pasture. Similarly, many producers tend to market their cull cows in the fall immediately following calf weaning. Two of the primary reasons for marketing these cull cows in the fall are because the calf is now weaned and the producer does not want to feed the animals through the winter. Both reasons are plausible reasons to market cull cows to the slaughter market, but they may not lead to the most profitable decision every year.
The feeder cattle market tends to soften some during the fall due to the expectation of when these cattle will come off feed. The feeder cattle market is more closely related to the fed cattle market and the beef markets which play into the feeder cattle seasonal price trends. While cash prices took a hit this week, feeder cattle futures found support at the end of the week. It is not uncommon to experience a small jump in prices after the initial fall market downturn. However, the small turnaround is usually short lived and the market generally returns to its down trend in October. Given the current market situation, downside risk is becoming much smaller since the market has already priced in a tremendous decline. Calf prices and slaughter cow prices probably have the most downside risk relative to feeder cattle. However, the only way feeder cattle prices will find support will be when the fed cattle market witnesses some clearing action. It will take feedlots moving lots of heavy cattle before the feeder cattle market finds a spark.
FRIDAY’S FUTURES MARKET CLOSING PRICES: Friday’s closing prices were as follows: Live/fed cattle –October $133.70 +3.00; December $137.00 +3.00; February $137.50 +3.00; Feeder cattle - October $184.60 +4.50; November $181.60 +4.50; January $176.15 +4.50; March $174.00 +4.50; December corn closed at $3.89 up $0.08 from Thursday.
By Dr. Andrew P Griffith