FED CATTLE: Fed cattle trade was not well established at press. Ask prices on a live basis were $106 to $107 and $165 on a dressed basis while bid prices were $101 live and $160 dressed. The 5-area weighted average prices thru Thursday were $102.72 live, down $1.75 from last week and $159.00 dressed, down $3.59 from a week ago. A year ago prices were $126.27 live and $201.47 dressed.
The price of finished cattle continues to wallow as packers maintain leverage over cattle feeders. The seasonal tendency is for prices to pick up as the market moves toward the Christmas season. There is still time for the market to accelerate heading into the holiday season, but every passing week of limited price movement inserts more skepticism into the mind.
Fed cattle prices could easily break out to the upside and get to the $108 to $110 mark before year’s end, but the increased harvest rate of steers, heifers, and slaughter cows will weigh on beef prices. Year ago prices do not seem so low in today’s market, but they sure seemed terrible last fall and winter as the market trudged through heavy cattle.
BEEF CUTOUT: At midday Friday, the Choice cutout was $185.33 down $0.26 from Thursday and down $3.69 from last Friday. The Select cutout was $167.79 down $0.88 from Thursday and down $5.96 from last Friday. The Choice Select spread was $17.54 compared to $15.27 a week ago.
The Choice cutout price continues to strengthen relative to the Select cutout price resulting in a wider Choice Select spread, but both Choice and Select prices continue to slip. The abundance of meat protein on the market is forcing meat prices lower. Federally inspected beef production is up 5.2 percent year to date compared to 2015 and only 3.0 percent below the five year average year to date.
Similarly, federally inspected pork production in 2016 is up 1.2 percent year to date compared to 2015 and 9.0 percent higher than the five year average. The increased beef and pork production has resulted in total red meat production being 3.1 percent higher than the same time period a year ago and 2.5 percent higher than the five year average. Additionally, broiler production is up 2.0 percent year to date compared to 2015 and 9.4 percent above the five year average production.
Increased meat production will continue to pressure prices as hog slaughter remains close to record levels and as more beef heifers are diverted from breeding pens to finishing pens.
OUTLOOK: Calf and feeder cattle prices were softer this week compared to a week ago. Feeder cattle futures have come off their contract lows experienced in the middle of October, but they have been trading in a $5 range the past three weeks with little sense of direction. The market is now trading toward the top of that range, and if recent history is any indication, one might suspect contract prices to break out in one direction or the other. However, the market may be trying to take a breather and find equilibrium.
It does appear cattle are undervalued at this time which bodes well for cattle prices to increase over the next several months, but significant price movements will likely not happen until December or until after the first of the year which is the most likely scenario.
Cattle prices are always of concern to those who play in the cattle and beef industries, but an even bigger concern for those in the Southeast United States is drought. It may not matter what cattle prices are now, or what they are going to be in the future if significant precipitation events do not occur in the near future. Drought conditions have been plaguing the Southeast for several months and there does not appear to be much relief in sight at this time. Very few chances of rainfall are in the immediate forecast which further exacerbates the situation.
The uniquely dry summer and fall months has resulted in a shortened grazing season for most producers and has resulted in feeding hay several months earlier than planned. If the decline in cattle prices was not enough to dampen cattle producers spirits, no pun intended, then higher feed costs will likely finish the job.
Cattle producers should consider culling underperforming breeding stock to reduce total feed cost while also considering shifting that feed use to preconditioning and backgrounding calves through the winter if possible. Producers should also evaluate commercial feed prices along with hay prices to determine the most economical ration for managing the cattle herd through the rest of the drought and the winter months. The key is living to fight another day, because Mother Nature always wins.
ASK ANDREW, TN THINK TANK: Several international beef trade questions have been asked recently as it pertains to imports of chilled and frozen beef from Brazil to the United States, exporting beef to China, and the Trans Pacific Partnership (TPP). All three of these trade situations have the ability to impact the domestic beef market, but it is integral for producers to remember that changes in trade dynamics do not necessarily increase or decrease the return to the domestic beef industry. There is no doubt, the beef industry wants to market its product to its highest value, but as we start competing in one market, other countries will shift where there beef products go which provides increased competition in that market. The key is for producers to continue producing the safest and highest quality product possible and the market will take care of itself.
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 $105.60 +1.10; February $106.30 +0.80; April $106.10 +0.80; Feeder cattle –November $125.73 +0.53; January $121.03 +0.70; March $117.45 +0.50; April $116.93 +0.38; December corn closed at $3.40 down $0.03 from Thursday.