FED CATTLE: Fed cattle trade was $4 to $6 higher on a live basis. Prices on a live basis were $103 to $105 while prices on a dressed basis were mostly $162 to $164. The 5-area weighted average prices thru Thursday were $103.13 live, up $4.89 from last week and $161.77 dressed, up $7.75 from a week ago. A year ago prices were $136.67 live and $209.79 dressed.
There has been considerable concern over the past few years about a decline in cash cattle trade. However, cash trade has increased the past several months.
One reason for this increase is the Fed Cattle Exchange where finished cattle are auctioned online using Superior Livestock Auction. Thus, on Wednesday, over 10,000 head of finished cattle were traded through the Fed Cattle Exchange which was the first sign of the established price for the week.
The price of finished cattle then strengthened through the end of the week as live cattle futures found support for the first time since the middle of August. This is most likely the turnaround that the market has been waiting on since summer. Thus, prices are expected to be steady to slightly stronger the next couple of months.
BEEF CUTOUT: At midday Friday, the Choice cutout was $179.97 up $1.57 from Thursday and up $3.14 from last Friday. The Select cutout was $167.58 up $1.08 from Thursday and up $2.31 from last Friday. The Choice Select spread was $13.22 compared to $12.39 a week ago.
Beef cutout prices have trudged through late summer and the first half of the fall season. This does not mean packers are doing poorly though. Packers have actually been benefiting from very strong margins because of low finished cattle prices.
Low cattle prices provided packers incentive to pull cattle forward and harvest a large number of animals. This pulling forward of animals may be beneficial to the live cattle market in coming months as there will be fewer animals ready for harvest relative to what could have been expected if cattle marketings were at “normal” rates.
As the market moves through November and December, the expectation is for cutout prices to strengthen due to the holiday market. This means cutout prices will be supported by middle meats over the next couple of months. One more positive aspect of the cattle business that is not part of the cutout value is the hide and offal value.
The offal value experienced record prices a couple of years ago, but then plummeted. These values have begun creeping back up and will add value to finished cattle.
OUTLOOK: The first signs of life in the cattle market surfaced this week as the November feeder cattle futures price increased over $9 from the contract low late last week. The stronger feeder cattle futures resulted in steer prices in Tennessee being up $3 to $6 per hundredweight compared to last week while heifer prices were up $4 to $10 per hundredweight.
It is not common for calf and feeder cattle prices to escalate during October and November, but there is potential for prices to increase this year because the lighter weight animals have been undervalued for several weeks. Deferred contracts remain severely discounted to the nearby November feeder cattle contract, but the expectation is for those contract prices to converge to the cash price as the marketing time period is reached.
Producers should not expect any tremendous price recovery over the next month though the expectation is for cattle prices to inch up with the biggest gains expected after the first of the year. With that information, using this week’s prices only and not looking to the future price, the value of gain of carrying 475 to 575 pound steers to 775 pounds has a value of gain ranging from 75 to 78 cents per pound. Thus, if the price of 775 pound steers increase relative to today’s weekly auction price then the value of gain will be greater than 75 to 78 cents. This represents a fairly decent opportunity for stocker producers.
With the expectation of prices increasing in 90 to 120 days and the fact that most stocker producers will achieve a higher price due to marketing cattle in load lots, the value of gain nears $1 per pound. Most producers have a cost of gain that is much lower than $1 per pound which results in positive margins over the feeding period. Feedlot managers are sending the message to cow-calf and stocker producers that they desire an animal that is over 700 pounds which is what has resulted in lighter calf prices being severely discounted relative to heavier animals.
ASK ANDREW, TN THINK TANK: This week, we have been hosting a small ruminant conference in middle Tennessee. I have learned several production and economic lessons from this conference even though I am not a small ruminant producer. We had about 60 participants at the conference which was a little disappointing to me, because the information discussed was great. I really hope our livestock producers in this state are not just attending educational meetings to be eligible for TAEP grant funds. The TAEP funds have benefited many producers and industries in the state over the past decade. However, my hope is that producers are constantly seeking information instead of only worrying about maintaining their certification every three years to remain eligible for 50 percent cost share with TAEP. These are really continuing education opportunities. Please take advantage of these meetings and conferences.
Please send questions and comments to firstname.lastname@example.org 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 $104.35 -0.80; February $104.93 -0.63; April $104.25 -0.68; Feeder cattle –November $121.55 -2.33; January $116.00 -2.53; March $113.15 -2.33; April $112.93 -2.18; December corn closed at $3.55 down $0.03 from Thursday.