FED CATTLE: Fed cattle trade was steady to $1 higher on a live basis. Prices on a live basis were $104 to $106 while prices on a dressed basis were mostly $162 to $164. The 5-area weighted average prices thru Thursday were $104.47 live, up $1.34 from last week and $162.59 dressed, up $0.82 from a week ago. A year ago prices were $130.44 live and $204.74 dressed.
Finished cattle prices made little to no movement this week. This is a positive sign from the standpoint that cattle feeders did not face lower prices, but it is a negative sign considering cattle feeders are in desperate need of positive margins. Finished cattle prices normally find support in the late fall time period due to holiday beef demand and fewer harvest ready animals.
However, cattle feeders have yet to gain leverage over packers who continue to do well from a margin standpoint. The expectation continues to be a positive price movement for fed cattle moving through the next month and a half. How strong that price movement will be is yet to be determined. Cattle feeders will welcome all positive price movements for fed cattle.
BEEF CUTOUT: At midday Friday, the Choice cutout was $189.02 up $0.28 from Thursday and up $9.05 from last Friday. The Select cutout was $173.75 down $0.12 from Thursday and up $6.17 from last Friday. The Choice Select spread was $15.27 compared to $13.22 a week ago. The price of Choice beef escalated quickly with the arrival of November as the loin and rib primal cuts are leading the way. The Thanksgiving holiday is three short weeks away and most retailers are finishing their turkey purchases, but the retail and food service sector is also ramping up beef purchases as the holiday season quickly approaches.
Middle meats will carry the Choice cutout through the holiday season before giving way to the end cuts during the winter months. The increased pull on middle meats will likely widen the Choice Select spread a little further in coming weeks, but the spread will quickly narrow once the holiday season comes to an end. The biggest story of all is the increase in beef production.
Beef production is up nearly 5.1 percent year to date compared to a year ago. However, beef production in 2016 is 3.2 percent below the five year average. In all likelihood, beef production will continue to escalate which should pressure beef prices lower and thus the cattle complex to lower levels.
OUTLOOK: Calf and feeder cattle prices made modest improvements for the second week in a row. The two consecutive weeks of higher prices has resulted in the value of a 525 pound steer increasing $27 per head over that time period. The increased value is very small relative to the value previously lost, but the extra dollars will mitigate some of the losses.
Looking at weight classes and the number of animals coming to market, it appears several producers are marketing animals at heavier weights. It is likely many producers held on to their calves in October with the hope that prices might escalate. Such a decision could easily move calves from the 500 to 600 pound weight class to the 600 to 700 pound weight class which is what appears to be the case based on the weekly auction summary. The monthly Tennessee data for October shows marketings to be up nearly 15 percent from October a year ago.
However, the total head marketed in September was down nearly 13 percent from September 2015 which probably means producers carried those animals over into October. Assuming the prior analysis is correct, producers have retained many of these calves long enough to add 60 or more pounds to them. Thus, the producers who made the decision to hold onto the animals for a few more weeks have experienced higher prices and gained on the weight that was added. More likely than not, the decision by most producers to keep these animals at home for a period was a short-run decision and the higher prices the past couple of weeks will continue to pull these animals out of the country and into backgrounding operations.
There continues to be opportunity to add weight to calves, but this decision is more of a 60 to 120 day decision. The value of gain for carrying a 525 pound steer to 625 pounds has a value of gain of 84 cents per pound using current week prices. Any positive improvement in price, which is expected, will increase this value of gain. The value of gain from 525 to 725 pounds is 79 cents per pound. This value of gain does not include premiums from value added practices or marketing in truck load lots (48,000 to 50,000 pounds).
ASK ANDREW, TN THINK TANK: The question concerning bred heifer prices this fall has been brought to light several times recently. A recent bred heifer sale in Columbia, Tennessee with just shy of 300 head saw bred heifer prices range from $1,200 to $1,500 per head with the average in the $1,400 to $1,450 range. A similar sale takes place the evening of Friday November 4th in Washington County where 140 females will be marketed. These two sales should provide a good indication of where bred heifer prices are this fall.
The next question will be about bred heifer prices for next year. Next year will probably be a good year to purchase bred heifers, because they will likely be less expensive. However, it may not be the best move to purchase and develop heifers for breeding this fall.
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 –December $102.73 -1.35; February $104.30 -0.98; April $104.35 -0.75; Feeder cattle –November $125.63 -0.23; January $117.85 -0.90; March $115.33 -0.63; April $115.28 -0.48; December corn closed at $3.46 up $0.01 from Thursday.