FED CATTLE: Fed cattle traded steady to $1 higher on a live basis compared to last week. Prices on a live basis were mainly $117 to $118 while dressed prices were mainly $188. The 5-area weighted average prices thru Thursday were $117.67 live, up $0.59 from last week and $187.98 dressed, down $0.87 from a week ago. A year ago prices were $131.84 live and $210.02 dressed.
Cattle feeders continue to enjoy positive margins following the turn of the calendar to 2017. Prices the first week of 2017 are much lower than they were one year ago, but cattle feeders have a much more positive attitude toward current prices than they did last January.
Cattle feeders were deep in the red a year ago due to having paid high prices for feeder cattle and then wading through a declining finished cattle market. The current market situation is much different when compared to a year ago in that cattle feeders purchased cattle on a declining market in late summer and through the fall. Cattle feeders are now riding the strength of the finished cattle market into 2017 which was set up by pushing cattle through the system in late summer and early fall.
BEEF CUTOUT: At midday Friday, the Choice cutout was $199.14 down $2.41 from Thursday and down $4.17 from last Friday. The Select cutout was $193.76 up $0.37 from Thursday and up $0.08 from last Friday. The Choice Select spread was $5.38 compared to $9.63 a week ago.
The Choice and Select beef cutouts are headed in opposite directions. The wholesale price of Choice beef is faltering after the holiday gatherings while the price of Select beef is holding steady. This is a common occurrence as consumers move from higher quality meat to lower quality beef that can be thrown in the slow cooker or in the oven.
The shift in purchases by retailers and consumers has resulted in the Choice Select spread narrowing more than $13 in a four week span. The narrowing of the Choice Select spread is far from over as the focus will continue to be on Select quality beef the next couple of months.
There is even a possibility the price of Choice quality beef could fall below Select beef, but buyers will quickly figure out such an occurrence and the market will shift back to Choice beef receiving a higher price.
Overall, wholesale beef prices will remain strong as consumers definitely have a taste for beef products. Current strength in the beef market bodes well for the spring beef market when grilling season takes control.
OUTLOOK: After a holiday hiatus, auction markets were back to business this week. There is considerable interest in what cattle prices will do heading into 2017 and throughout the year.
The first week of trade on the feeder cattle futures market revealed little information as the tone was softer but no dramatic price shift. From a local Tennessee auction standpoint, it appears cattle feeders are interested in securing inventory to place on feed as a few loads of 800 to 900 pound steers were marketed this week ranging from $1,000 to $1,100 per head.
There will be interest by feedlot managers in cattle coming off wheat pasture very soon as those animals will be ready to gain weight and do it quickly if weather conditions moderate from cold and wet. Feeding cattle during winter is always a gamble as the cold weather reduces feed efficiency, slows the rate of gain, and increases cost of gain.
Despite the negatives, it is expected cattle feeders will continue to try to source heavier cattle in the near term that can hit the grilling season market.
From the calf market standpoint, interest by buyers will be limited. The calf market will not receive much interest until March when grass fever hits the industry.
Given current prices on Tennessee auctions, 500 to 600 pound steers were valued between $650 and $750 per head. If seasonality is evident in this year’s market then 500 to 600 pound freshly weaned calf values could increase 6 to 7 percent or $40 to $50 per head by March.
Calf values in the $700 to $800 range will definitely result in economic profits for some producers and losses for others. Alternatively, calf values will decline from the spring high through the summer and fall which may make it difficult for some producers to cover variable costs in 2017.
There remains time for producers to make management and marketing decisions for 2017 that can mean profits or losses. The cattle business is not about hitting home runs every year but rather stringing together several base hits that will put runs on the board and keep one’s spot in the lineup.
ASK ANDREW, TN THINK TANK: Basis is a term used when talking about the difference between the cash price in a local market and the futures price on the Chicago Mercantile Exchange (CME). A positive basis occurs when the cash price is higher than the futures price while a negative basis value occurs when the cash price is lower than the futures price. Basis values can be used for several purposes. Historical basis information can assist in predicting prices which can be used when making purchasing or marketing decisions. A basis that is strong relative to historical basis values generally supports the idea of marketing cattle more quickly as opposed to growing them further. A weak basis may provide incentive to hold cattle longer with the hope of the cash market strengthening in the near term. This is a short introduction to basis.
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FRIDAY’S FUTURES MARKET CLOSING PRICES: Friday’s closing prices were as follows: Live/fed cattle –February $114.83 -0.25; April $114.20 +0.05; June $103.98 +0.03; Feeder cattle –January $128.33 +0.08; March $123.80 +0.05; April $123.70 +0.08; May $122.98 +0.23; March corn closed at $3.58 down $0.03 from Thursday.