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 $199 to $200. The 5-area weighted average prices thru Thursday were $124.83 live, up $0.45 from last week and $199.99 dressed, up $4.07 from a week ago. A year ago prices were $136.00 live and $212.00 dressed.
Fed cattle prices held their ground this week as strong demand remains evident throughout the industry. The strong cash values since the first of the year have allowed cattle feeders to recoup some of the losses experienced throughout 2016.
The ability of cattle feeders to market animals at an elevated level has allowed them to pay a little more for feeder cattle in the near term. However, cattle feeders are hesitant to push feeder cattle prices very high due to the heavy discounts in deferred live cattle futures.
Cattle feeders will continue to pull cattle through the pens if finished cattle prices remain elevated. The question is if these prices will hold through the seasonally strong months of April and early May. It would be a positive sign for many.
BEEF CUTOUT: At midday Friday, the Choice cutout was $208.99 up $0.64 from Thursday and up $10.56 from last Friday. The Select cutout was $203.33 down $0.39 from Thursday and up $7.98 from last Friday. The Choice Select spread was $5.66 compared to $3.08 a week ago.
Neither Choice nor Select boxed beef had any trouble surpassing the $200 mark this week. In actuality, Choice prices steamrolled the $200 price level and kept trucking. Most of the support is coming from the loin and rib cuts as restaurants, grocers, and foodservice entities look to secure product earlier than normal.
The increased interest in the middle meats means more focus is being shifted to Choice meat rather than Select grade meat which will continue to widen the Choice Select spread if the current trend continues. It is a little difficult to understand why retailers are aggressively purchasing product considering the “lower expected price in the future.”
Either retailers suspect prices will continue to escalate which would contradict current information or retailers are in the business of buying high and selling low. Fundamentally speaking, retailers are probably making the correct decision considering the increases in beef exports and strong domestic beef demand the market has witnessed the past several months.
OUTLOOK: A short cold snap and some severe weather did little to deter stocker producers from trying to source calves this week as steers were up $2 to $4 and heifers were steady compared to one week ago based on Tennessee weekly auction market averages.
There is no doubt demand is good for lightweight calves as spring approaches, but the question for grazers in the Southeast is if enough grass made it through the drought of last summer and fall to maintain normal stocking rates. If there is not enough grass then the stocking rates will have to be reduced or producers will have to drill annual forages to support the animals through the grazing season.
From a profitability standpoint, stocker producers are beginning to push against a time period when calf prices are trending higher and will peak in the next six to eight weeks. Paying higher prices for calves will certainly put pressure on achieving a reasonable margin.
Alternatively, cow-calf producers may want to hold onto calves a few more weeks to squeeze another $20 to $30 per head out of them. The market is geared for some excitement and volatility the next few weeks as winter fades to spring and as feedlots try to dry out. Feeder cattle futures are sure to experience some volatility as prices generally experience a short seasonal price decline before finding support heading into April.
Now is the time for fall calving producers to run numbers for spring marketing opportunities. Many producers will wean the calves on the truck, but it may be prudent for producers to evaluate a preconditioning and backgrounding phase for calves that will soon be weaned.
The futures market is not pricing in a favorable value of gain through the summer, but futures markets have led people down a less profitable path several times in recent memory. There is little to no reason to have a bearish outlook on feeder cattle heading into spring and summer.
Feeder cattle futures appear to be undervaluing the animals but that is supported by the undervalued live cattle futures. It may take running value of gain and cost of gain values regularly the next few weeks to solidify a decision.
ASK ANDREW, TN THINK TANK: This week there were two questions that paired well with each other. The first question was in relation to price differences of cattle being graded on the rail, and the second question was in relation to how a cow-calf producer can get paid for cattle that grade well. Finished cattle are graded based on quality grade (Prime, Choice, Select, etc.) and yield grade (1-5). Base prices are for Choice yield grade 3. Thus, premiums are received when cattle grade higher than Choice and yield grade 1 or 2. Premiums vary throughout the year given the demand for certain products. The Choice quality grade is broken down into lower one-third and upper two-thirds. Cattle grading in upper two-thirds Choice and meeting other Certified Angus Beef (CAB) requirements receive a CAB premium. Weekly premiums and discounts can be found on USDA's website. In relation to the second question, the only guaranteed way to know how a producer’s cattle perform is to retain ownership through the feedlot. The Tennessee Beef Evaluation program assists producers in shipping cattle to a feedlot in Iowa and data is collected through the feeding and harvest phase. This type of information can be used to market feeder cattle in future years.
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 –April $115.98 -0.18; June $106.75 +0.03; August $102.28 +0.33; Feeder cattle –March $124.23 +0.78; April $122.95 +1.03; May $122.40 +0.68; August $124.35 +0.48; March corn closed at $3.75 up $0.02 from Thursday.