FED CATTLE: Fed cattle traded steady to $1 lower compared to last week on live basis. Prices on a live basis were mainly $121 to $122 while dressed prices were mainly $193 to $194. The 5-area weighted average prices thru Thursday were $121.40 live, down $0.49 from last week and $193.58 dressed, down $1.24 from a week ago. A year ago prices were $131.00 live and $209.16 dressed.
Cattle feeders were able to maintain the status quo from a week ago which should be considered a win for most feedlot managers. There appears to be turbulence in the market but the reason for the disturbance is unclear.
Finished cattle prices have increased more than $23 on a live basis since their bottom in mid-October. The stated increase puts about $300 more per head in the cattle feeders pocket than the doldrums of October.
Current market information does not support any significant price movement in either direction, but it is likely finished cattle prices will soften in the near term prior to finding support heading into the second quarter of 2017. Cattle feeders should not expect a tremendous move to the upside.
BEEF CUTOUT: At midday Friday, the Choice cutout was $193.69 up $0.69 from Thursday and up $3.45 from last Friday. The Select cutout was $187.98 up $0.14 from Thursday and up $1.90 from last Friday. The Choice Select spread was $3.81 compared to $2.26 a week ago.
The beef cutout found some stability this week as prices increased modestly from a week ago. This is a welcome sign for packers who have been trudging through trenches the past several weeks with lower wholesale beef prices and higher finished cattle prices.
The beef market was surprisingly strong leading up to Christmas, but the follow through was not existent once 2017 showed up. Reduced beef demand in late winter is always a struggle for the beef industry, but packers are hoping for a repeat of a year ago when retailers increased beef features in February and March which is not common.
Every primal cut appears to be weighing on the composite beef cutout price. However, the loin and rib primal are acting as a millstone necklace for packers which continue to weigh on the overall cutout price.
The round, chuck, and brisket are providing limited support at a time when they normally carry beef prices. The one bright side to beef prices is 90 percent lean beef which is holding steady to a year ago, but it does not contribute to the beef cutout price.
OUTLOOK: Winter temperatures have returned to the Southeast United States following two weeks of unseasonably warm weather. The warm temperatures and rain were welcomed by most producers who are short of hay and in need of early spring grass. The warm temperatures reduced cattle feed needs for a short time and resulted in pastures regaining a nice green tint. However, the positive effects of above average temperatures will do little to assist producers in overcoming the forage and hay shortage brought on by the summer and fall drought in 2016.
Producers looking to conserve hay resources and reduce the overall quantity of forage needed may consider early weaning calves and managing them separate from the cow herd. Research shows early weaning calves improve the reproductive efficiency of the cow herd in the subsequent breeding season and this is especially true for young cows that are still growing (Lusby et al. 1981; Story et al. 2000).
Similarly, calves can be successfully grown in an early weaning (5 to 6 months of age) scenario (Story et al. 2000; Meyer et al. 2005). Early weaning and backgrounding calves for a period of time may be beneficial for some operations that have fall calving herds.
Alternatively, many operations prefer to market calves at weaning. In this case, early weaning may still be a good option. Calf prices generally peak in March and remain strong through the first half of April. Producers choosing to early wean would be forgoing selling pounds, but may make up for it on the price side as lightweight calves bring a premium in early spring.
Calf prices have escalated the past several weeks, but the prospects of positive margins for stocker producers continue to look positive. Evaluating current purchases, the value of gain on stocker cattle continues to exceed $1 per pound for most classes of cattle which should provide opportunity to profit from the business. Buyers and sellers are both encouraged to keep an eye on the market the next few months as prices could make some moves.
The January cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of January 1, 2017 totaled 10.61 million head, up 0.2% from a year ago, with the pre-report estimate average expecting a decrease of 0.9%. December placements in feedlots totaled 1.80 million head, up 17.6% from a year ago with the pre-report estimate average expecting placements up 8.8%. December marketing’s totaled 1.79 million head up 6.8% from 2015 which corresponds closely with pre-report estimates. Placements on feed by weight: under 600 pounds up 16.0%, 600 to 799 pounds up 26.4%, and 800 pounds and over up 4.5%.
ASK ANDREW, TN THINK TANK: Last Friday evening I ran into a producer asking me to comment on the implications of Donald Trump becoming the President and the potential impacts on the cattle industry. This is a topic that I may touch on throughout the year as policy decisions are made. One of the first moves made by President Trump was to push the Trans Pacific Partnership (TPP) off the table. There is no doubt the TPP would have been advantageous for the domestic beef cattle industry. This is especially true when it comes to discussing trade with Japan. TPP would have incrementally reduced tariffs on exports to Japan which would have kept the U.S. competitive with the likes of Australia and its trade agreement with Japan. However, TPP covers a plethora of goods and trade implications, and it is difficult to wrap one’s head around the entire agreement. The agricultural community will have to wait and see what President Trump’s plan is.
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 –February $118.33 -0.38; April $117.33 -0.25; June $106.98 -0.23; Feeder cattle –March $127.45 +0.35; April $126.75 +0.00; May $125.13 -0.03; August $125.83 -0.20; March corn closed at $3.63 down $0.01 from Thursday.