FED CATTLE: Fed cattle traded $3 to $4 higher compared to last week on a live basis. Prices on a live basis were mainly $128 to $130 while dressed prices were mainly $207 to $209. The 5-area weighted average prices thru Thursday were $128.75 live, up $3.50 from last week and $208.03 dressed, up $6.46 from a week ago. A year ago prices were $140.52 live and $224.37 dressed.
Cattle feeders continue to find favor in the hands of the cattle market as finished cattle values jumped $40 to $60 per head compared to last week. There are few, if any, analysts or cattle feeders that predicted this spring flare in finished cattle prices, but cattle feeders continue to welcome the strong margin after suffering through a mentally, physically, and financially challenging 2016.
The immediate questions will continue to be if prices can push higher next week and how long these price levels can hold since spring has arrived. If seasonal tendencies are experienced then fed cattle prices should remain strong the next several weeks before losing ground in May and persisting through the summer months.
BEEF CUTOUT: At midday Friday, the Choice cutout was $223.18 up $0.82 from Thursday and up $3.56 from last Friday. The Select cutout was $214.91 up $1.04 from Thursday and up $3.48 from last Friday. The Choice Select spread was $8.27 compared to $8.19 a week ago. The Choice boxed beef cutout price has increased $35 in the past five weeks while the Select cutout price has increased $28 over the same time period. The price increase the past five weeks represents an 18.7 percent increase in the Choice cutout price and a 15.2 percent increase in the Select cutout price.
The tremendous price improvement is unprecedented for the months of February and March when beef movement is generally slow. Packers are usually gearing up for the spring price improvement in April and May, but the price jump occurred a couple of months early. The price hike in late winter now has packers and retailers asking questions about the magnitude of prices as the spring grilling season approaches.
Can beef prices continue to escalate the next several weeks, or will beef prices decline heading into the beginning of grilling season? One thing is for sure, if wholesale prices stay elevated then retailers and foodservice providers will pass those increased costs on to the consumer which could put pressure on beef and cattle prices once again.
OUTLOOK: Nearly all classes of cattle experienced stronger prices this week compared to the previous week. Slaughter cow prices continued to firm as is seasonally expected and stronger prices are expected to persist through May before finding weakness in late June and July. Prices for calves and feeder cattle also found a little support this week as stocker producers try to finish grass cattle purchases and feedlots are in search of yearling cattle to fill pen space.
Though the feeder cattle market received a boost from the futures market the past couple of weeks as most feeder cattle contracts gained $6 to $8 per hundredweight, feeder cattle in the country continue to trade at a discount compared to live cattle. Feeder cattle futures have been lagging behind finished cattle cash prices for several weeks which mean cattle feeders are selling cattle to packers for a higher price in some instances than the replacements that are currently being placed on feed.
This may seem like a positive position for cattle feeders, but the severe discounts in live cattle futures contracts is the reason for the negative price pressure. The abnormally large discount in deferred live cattle futures contracts compared to current cash prices makes it difficult for cattle feeders to push feeder cattle prices higher, because the profit margin 150 to 180 days out appear dismal at best.
Cattle feeders have been paying more for feeder cattle than futures markets support, and this is evident through the relatively strong basis in the feeder cattle market. The market situation makes it difficult for decision makers concerning purchasing and marketing decisions.
The best advice is to continue taking calculated risks from both a buying and selling standpoint. Futures markets likely have live cattle undervalued later in the year which mean feeder cattle are currently undervalued. Thus, stocker producers should be aware of the situation as they purchase calves this spring and summer.
Likewise, cow-calf producers who background their calf crop should be aware of the discounts in the market as well as the potential for that discount to persist.
ASK ANDREW, TN THINK TANK: Fires in the Plain states have been a topic of discussion across the entire nation. These same fires have led to questions concerning their impact on cattle markets. The most direct and simple answer is the fires will have little to no impact on the broader cattle market. It is sometimes difficult for people to understand that such a tragic incident can have such a small effect on the market, but the reality is very few animals, acres of forage, and feedstocks were impacted compared to the total number of cattle and feed resources available. Though the national beef and cattle markets will only be slightly impacted, producers in the regions impacted have taken a major blow and will feel the ramifications of these fires for several years. Many of these producers have a long row to hoe to recover from the effects of this disaster. There is no doubt prayers and support are appreciated by those communities.
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 –April $119.33 +0.13; June $109.68 +0.25; August $105.45 +0.53; Feeder cattle –March $131.33 +0.78; April $131.63 +1.08 May $130.38 +0.95; August $131.05 +0.88; March corn closed at $3.68 up $0.02 from Thursday.