FED CATTLE: Fed cattle traded steady to $1 higher compared to last week on live basis. Prices on a live basis were mainly $125 to $126 while dressed prices were mainly $201 to $202. The 5-area weighted average prices thru Thursday were $124.25 live, up $0.42 from last week and $201.57 dressed, up $1.58 from a week ago. A year ago prices were $136.00 live and $218.09 dressed.

Finished cattle prices once again traded steady to a little firmer this week. The futures market continues to attempt to price live cattle lower, but cash trade in the country cattle pens contradicts what is going on inside cattle trading office utopia.

Cattle feeders welcome the extremely positive basis values, and the positive basis will continue to make them willing sellers if futures continue to trade at such a heavy discount. The continued strength in finished cattle markets is not surprising as beef demand remains strong.

There is a good possibility fed cattle prices could continue to exceed the $120 mark for several weeks before being pressured by the summer run of cattle. Cattle feeders will remain deep in the black for several more months.

BEEF CUTOUT: At midday Friday, the Choice cutout was $219.62 up $4.06 from Thursday and up $10.63 from last Friday. The Select cutout was $211.43 up $2.43 from Thursday and up $8.10 from last Friday. The Choice Select spread was $8.19 compared to $5.66 a week ago.

Boxed beef prices, similar to finished cattle prices, continue to remain strong during a time when beef demand is generally soft. The loin and rib primal cuts continue to be the primary players in the increase in cutout prices as domestic consumers appear to be in search of steak cuts earlier than normal.

Not only does domestic demand appear healthy but so does export beef demand. There is no doubt beef is being moved at lower prices than a year ago which is part of the demand equation, but large quantities have been shipped the past several months from U.S. ports.

January beef export data was released earlier this week and the report indicated an increase of beef exports of 36.6 million pounds compared to January 2016. That represents a 20.9 percent increase in beef exports from a year earlier.

January export values correspond closely with the last five months of 2016 when we saw beef exports increase 25.9 percent compared to the same five month period in 2015. There is no reason to think this trend will change in the next few months.

OUTLOOK: Softness was present in the calf and feeder cattle markets this week based on Tennessee weekly auction market data and video sale results. Even with slightly lower prices, it is evident there remains strong demand for lightweight grass cattle and feeder cattle ready to enter the feedlot. It also appears many feedlots are beginning to look for a lighter weight animal because the cost of gain is so low and finished cattle profitability is so high.

One factor potentially muting the grass cattle run up in prices is the wildfires in the Western U.S. The wildfires will likely only have short term impacts on the national market, but could greatly impact local markets in those areas for weeks to come as producers and the environment attempt to recover.

The expectation is for lightweight calf prices to strengthen through March before being pressured lower through the summer and fall months. Such a price movement would be in line with the seasonal tendency for stocker cattle.

All classes of cattle are expected to follow a more seasonal price pattern throughout 2017 which means feeder cattle prices could find a few more dollars per hundredweight between now and mid-summer. It may be difficult for feeder cattle to push as high as the seasonal tendency would indicate, but a few more dollars would put most stocker producers above breakeven prices. Feeder cattle futures are pricing in little to no price change from March through October, but the likelihood of prices varying less than $2 per hundredweight the next six months is highly unlikely.

The muddiest water in the cattle markets is the severe discount in deferred live cattle futures, because finished cattle demand remains strong and prices remain elevated. The heavy discount in deferred live cattle contracts will keep nearby feeder cattle futures in check and will not allow them to make a major price run. Thus, it is difficult to use hedging strategies in the feeder cattle market at this time due to the relatively strong basis. It is not often cash live cattle and nearby feeder cattle futures are trading within $2 of each other.

ASK ANDREW, TN THINK TANK: While in West Virginia this week, a question was raised concerning beef export demand elasticities. This question is generally much deeper than the cattle producer wants to discuss, but it would be good for producers in the industry to understand what demand elasticities mean. Elasticities are used to estimate how demand for beef changes as beef price changes (own price elasticity), other product prices change (cross price elasticity), and consumer incomes change (income elasticity). Beef is a normal good. Thus, when beef prices increase, competing meat prices decease, or consumer income declines then consumers are expected to purchase less beef. Alternatively when beef prices decrease, competing meat prices increase, or consumer income increases then consumers are expected to purchase more beef. The elasticity is an estimation of how much demand will change given a one percent change in prices or income. Export demand elasticities for the price of beef vary by country but are largely found to be elastic which means a one percent change in beef price results in a larger than one percent change in beef demanded. 

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 $117.60 +1.10; June $107.50 +0.78; August $103.05 +0.65; Feeder cattle –March $127.48 +1.33; April $126.68 +2.05; May $125.78 +1.70; August $127.43 +1.48; March corn closed at $3.58 down $0.02 from Thursday.