FED CATTLE: Fed cattle traded $1 higher compared to last week on live basis. Prices on a live basis were mainly $119 to $120 while dressed prices were mainly $190. The 5-area weighted average prices thru Thursday were $119.75 live, up $0.99 from last week and $190.06 dressed, up $0.28 from a week ago. A year ago prices were $131.70 live and $205.96 dressed.
Fed cattle prices bounced back this week which should continue to support the contentment of cattle feeders. Cattle feeders suffered through many months of losses, but 2017 is helping to rectify the losses experienced in 2016.
Deferred live cattle contracts are trading at severe discounts to the nearby contract which has cattle feeders marketing cattle at a steady pace which should keep them current in their marketings. Though futures are pricing in sharp discounts, there does not appear to be any reason to be bearish on live cattle.
The live cattle market is expected to remain fairly strong through the early spring months with softer prices coming in the summer when a larger supply of cattle are ready to be harvested.
BEEF CUTOUT: At midday Friday, the Choice cutout was $188.04 down $0.67 from Thursday and down $6.11 from last Friday. The Select cutout was $186.56 up $0.74 from Thursday and down $3.32 from last Friday. The Choice Select spread was $1.48 compared to $3.40 a week ago.
The packing industry is not excited about the shift in leverage to the cattle feeder as finished cattle maintain relatively strong values while wholesale beef prices flounder. Packers are not in the worst situation they have ever experienced, but it is tough to achieve positive margins when cattle are being purchased on a dressed weight basis at a higher price than the composite boxed beef value is selling for.
One hindrance to beef prices is the increased production. Beef production increased 8 percent in the fourth quarter of 2016 compared to a year earlier and beef production is expected to continue increasing relative to the previous year throughout 2017.
Beef exports have also improved, but exports have not been able to keep up with the increased production. Beef is not the only meat experiencing increased production. Pork and poultry production remain elevated, but the export market has been kind to both species as the growth in exports has managed to outpace the increased production. Meat markets will hinge on the success of the export market in 2017.
OUTLOOK: Prices were mixed for cattle being traded through weekly auction markets this week in Tennessee. There was no solid trend either way which is representative of futures market.
It is evident producers are concerned about calf and feeder cattle prices declining further which is likely to happen, but there is not going to be some precipitous decline similar to the fall of 2016. It is hard to believe, but cattle prices are actually fairly strong relatively speaking.
If one is able to put the time period from 2013 through 2016 out of mind and compare 2017 prices with 2011 and 2012 then things do not look so bad. Prices in the first month of 2017 are 5.4 percent higher than January 2011 and 14.3 percent lower than 2012. However, it is important to remember that the spring of 2012 was when cattle prices made their first price run, but it was negated by wide spread drought.
In the near term, lightweight calf prices will continue to escalate as stocker producers search for calves to put on grass. The calf market will hold strong through most of March and maybe the first couple of weeks of April before deteriorating through the summer and fall.
Alternatively, feeder cattle could experience a week moment in the next month or so, but cattle ready for the feedlot will hold their own as the market moves into May and the summer months. There does appear to be some favorable buying opportunities for stocker producers the next few weeks. This buying opportunity has even more value if the expected cost of gain is low.
Continuing with the feeder cattle market, cattle feeders appear to be looking for heavier feeder cattle. The reason for this is because of the price spread between the nearby live cattle contract and the deferred live cattle contracts.
The futures market is placing more value on animals in the near future than animals late in the year. The two markets will converge, but it is most likely the futures market will increase more than the spot market will decline. Such a price movement will bode well for cattle feeders, but it will hamper the lighter weight feeder cattle.
ASK ANDREW, TN THINK TANK: A question was received this week through email concerning grass fed beef and the pricing of grass fed beef sold off the farm. USDA has a monthly report for grass fed beef prices. The location of the report and the method of reporting have been changed slightly from the original report produced by USDA-AMS, but the information remains useful. The report contains prices for wholesale grass fed beef cuts by the primal from which they originate as well as prices for direct to consumer retail price. Additionally, the report provides information on regional differences in price for a few cuts as well as comparing grass fed beef cuts to the same commodity cut. Lastly, the report contains information related to grass fed beef carcass prices and cost of production. Producers can access this monthly report here.
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 –February $116.40 -1.25; April $113.15 -1.68; June $104.28 -1.00; Feeder cattle –March $122.08 -1.55; April $122.45 -1.60; May $121.80 -1.35; August $123.60 -1.15; March corn closed at $3.75 up $0.05 from Thursday.