FED CATTLE: Fed cattle traded $5 to $6 higher on a live basis compared to a week ago. Prices on a live basis were mainly $108 to $109 while prices on a dressed basis were mainly $170. The 5-area weighted average prices thru Thursday were $107.92 live, up $5.20 from last week and $169.92 dressed, up $10.92 from a week ago. A year ago prices were $122.51 live and $194.50 dressed.
There seems to be no rhyme or reason for price movements in the finished cattle market, but prices rose sharply this week which is good news for cattle feeders. The futures market sprang into action on Wednesday following the trade on the Fed Cattle Exchange managed by Superior Livestock Auction. Wednesday’s surge set off a frenzy of cattle trading on Thursday which essentially wrapped up the cattle trade for the week.
Higher prices are welcomed by most in the industry even though an increase in the middle of November is rare as the market tries to wrap up Thanksgiving items. There remains upside potential in the fed cattle market, and a trade above $110 in the next couple of weeks would be a very positive sign.
BEEF CUTOUT: At midday Friday, the Choice cutout was $183.29 up $0.98 from Thursday and down $2.04 from last Friday. The Select cutout was $167.46 up $0.36 from Thursday and down $0.33 from last Friday. The Choice Select spread was $15.83 compared to $17.54 a week ago.
The Choice and Select cutouts continue to come under pressure as beef and all meat supplies increase. Similarly, as the meat supply has increased and wholesale beef values have come under pressure, retail beef prices have been slowly declining. Based on data from USDA-ERS, the retail value of Choice beef in October was $573.70 per hundredweight which is the lowest Choice beef retail price since March 2014. October’s Choice beef price represents a 10.5 percent price decline from the record retail price set in May 2015.
Though retail beef prices are declining, they do not appear to be keeping pace with the declines in wholesale values and cattle values. In March 2014, which is the last time the market has seen the current retail beef price level, the weekly Choice cutout price ranged from $233 to $242. This means the wholesale price in October 2016 was 24 percent lower than it was in March 2014 with essentially the same Choice retail beef price. It is normal for retail prices to react more slowly than wholesale values, but this large discrepancy will continue to raise eyebrows.
OUTLOOK: The fall run of cattle is finally beginning to pick up in Tennessee. Low prices in September and October resulted in many producers hanging on to calves a little longer than normal. However, small price improvements in November and drought like conditions the past few months have encouraged producers to set wheels under calves the past couple of weeks.
The market will likely continue to see strong runs of calves the first couple of weeks in December as producers try to move calves before the holiday break that many auction markets will take. In addition to calf movement, the severe and exceptional drought situation that covers much of the state has resulted in cow-calf producers culling more cows than normal.
The autumn grass situation is one of the worst witnessed in many years as late summer forage growth was minimal and the opportunity to stockpile cool season grasses never arose due to a lack of precipitation. The forage situation and the marketing of several cows provide a great educational moment. The forage shortage on many operations should instigate producers to consider stocking density, altering forage specie mix, and encourage the consideration of purchasing Pasture, Rangeland and Forage insurance in future years.
Market prices continue to offer favorable purchasing opportunities for calves that need to be backgrounded before entering the feedlot. However, the problem in the Southeast remains a shortage of forage. Stocker producers that generally use stockpiled forages and winter annuals to background calves should be cautious not to overstock pastures at this time. Most of these pastures will not carry as many animals this winter as they do in most winters due to a lack of growth. It will take some significant rainfall events to activate late growth potential and sustain the forage growth.
Some producers may even benefit from stockering lightweight cows through the winter. Light cows gain well on fair quality forage and can pack on the pounds rather quickly if forage is available. The expectation is for slaughter cow prices to improve towards the end of winter and through the spring months.
The November cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of November 1, 2016 totaled 10.67 million head, down 1.3% from a year ago, with the pre-report estimate average expecting a decrease of 1.1%. October placements in feedlots totaled 2.17 million head, down 5.0% from a year ago with the pre-report estimate average expecting placements down 4.9%. October marketing’s totaled 1.71 million head up 4.6% from 2015 which corresponds closely with pre-report estimates. Placements on feed by weight: under 700 pounds down 3.4%, 700 to 799 pounds up 9.3%, and 800 pounds and over down 16.9%.
ASK ANDREW, TN THINK TANK: The drought situation has become of utmost importance in the Southeast United States. It has decimated established pastures and prospects of any fall or winter growth. What should a producer do now? The answer is change management for the long-term. Producers should base stocking density on average or slightly below average forage years. This will provide increased flexibility in managing pastures. Consider diversifying forage species on the farm. The use of cool and warm season perennials can be advantageous, but the use of annuals can also help fill forage gaps left by the perennials. In years of excess forage, consider purchasing a few stocker cattle to utilize the excess forage. Another alternative may be to custom graze other producers’ cattle. This is not an exhaustive list, but may help one think of alternative management strategies.
Please send questions and comments to email@example.com 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 $108.33 +0.10; February $108.85 +0.05; April $108.90 -0.05; Feeder cattle –January $124.98 +0.05; March $120.78 -0.25; April $120.38 -0.08; May $120.03 +0.33; December corn closed at $3.46 up $0.04 from Thursday.