FED CATTLE: Fed cattle traded $4 to $5 higher on a live basis compared to last week. Prices on a live basis were mainly $135 to $137 while dressed prices were mainly $216 to $217. The 5-area weighted average prices thru Thursday were $136.25 live, up $4.63 from last week and $216.81 dressed, up $7.59 from a week ago. A year ago prices were $123.87 live and $194.50 dressed.
Despite higher feeder cattle placements and marketings in March, finished cattle prices continue to soar. Federally inspected cattle slaughter is up 6.6 percent year-to-date compared to 2016 which should put a lot more beef on the market. However, cattle dressed weights have kept beef production in check as they have averaged nearly 11 pounds lower thus far in 2017 compared to the same time period in 2016.
Higher slaughter rates and lower dressed weights have resulted in a 5.2 percent increase in federally inspected beef production. If cattle feeders are able to remain current in marketings then the summer and fall marketing months should remain kind to them as they move through the largest slaughter periods.
BEEF CUTOUT: At midday Friday, the Choice cutout was $221.00 up $1.85 from Thursday and up $3.31 from last Friday. The Select cutout was $207.92 up $1.24 from Thursday and up $3.86 from last Friday. The Choice Select spread was $13.08 compared to $13.63 a week ago.
Packers continue to market beef at higher prices as both the Choice and Select cutouts continued their ascension. It is necessary for packers to market beef at higher prices to keep pace with the finished cattle market. Higher wholesale prices have not improved packer margins, because they are continuing to pay higher prices for finished cattle. The market dynamics this year are much different from one year ago or even six months ago.
Through much of 2016 packers paid relatively low prices for cattle and then were able to market beef at relatively strong prices. The aforementioned conditions resulted in packers being in the driver’s seat and bringing in profits by the truckload. Fast forward to April 2017, cattle feeders are now driving the fleet and are maintaining leverage with timely marketings.
Packers are being helped with strong domestic beef demand as well as strong demand from the international market. Leverage will shift from the feedlot to the packer, but it may be later than normal if cattle continue to be pushed through.
OUTLOOK: The feeder cattle futures market was met with a surge of energy Wednesday and Thursday with most contracts gaining $9 over the two day period. Friday trading was much of the same as futures started slow but gained a full head of steam after the first few hours of trading.
There was no doubt feeder cattle had been undervalued for several months leading up to the initial surge in feeder cattle prices. However, the price jolt this week brings to question if the market is moving too high, if feeder cattle are being appropriately valued by the futures market, or if prices should move higher.
The price of feeder cattle in the local cash market is largely based on what feedlot managers perceive will happen to finished cattle prices. This is the same situation in the futures market where feeder cattle futures generally follow the price movement of live cattle futures which ties into cash market trade.
The live cattle market has been consistently strong the first four months of 2017, but much skepticism remained in the feeder cattle market until recently. The sustained strong finished cattle prices has many in the industry believing cattle prices will remain elevated which now has feedlot managers bidding up the price of feeder cattle.
Stronger prices have been good for cow-calf and stocker producers alike, but no one wants to be holding the short end of the stick when the market finds equilibrium. Thus, producers with physical inventory may want to consider forward contracting summer sales or at a minimum get a price floor on currently owned inventory using the options market or livestock risk protection insurance. The market could continue to go up which means no action is the correct decision.
Alternatively, the market could go down which means the owner of the cattle will watch total value drop if no action is taken. The use of a floor price could be beneficial in that it provides downside price protection while leaving the top side open if markets continue to strengthen. Producers should calculate profit margins and determine acceptable margins to capitalize on the recent price movement.
ASK ANDREW, TN THINK TANK: A recent question was raised that is one of many variations of a simple question. The question was in relation with whom and how to market cattle. The answer is to do business with trustworthy people and that will work hard for the best interest of all involved. It does not matter if a person uses one livestock market or another. Nor does it matter if the cattle are sold private treaty, through the barn, or on a video sale. The key is for producers to find someone they trust and someone who will help the producer achieve the full value of the animals being marketed. The state of Tennessee has many honest, dependable, and hardworking livestock marketing agencies. Producers should do their homework by calling the marketing agency and talking with sale management as well as talking with other producers about their experiences. If a person does not like whom they are doing business with then they should probably look elsewhere.
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 –June $124.03 +2.50; August $120.05 +2.28; October $118.33 +1.58; Feeder cattle –May $149.55 +2.98; August $154.70 +4.35; September $154.65 +3.88; October $153.55 +3.53; May corn closed at $3.58 down $0.04 from Thursday.