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Market Highlights: Standoff Between Cattle Feeders and Packers

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FED CATTLE: Fed cattle trade was not established at time of press. Asking prices were $108 on a live basis and $170 on a dressed basis while bids were $103 to $105 live and $166 dressed.The 5-area weighted average prices thru Thursday were $104.50 live, up $1.36 from last week and $166.87 dressed, up $3.87 from a week ago. A year ago prices were $106.98 live and $168.05 dressed.

Live cattle trade has been anemic the past few weeks as cattle feeders refuse to sell at lower prices and packers are not willing to accept a firmer undertone in the futures market. This standoff has slowed cash trade for the third straight week.

There is no doubt there are a few packers that are short bought and need a few cattle to meet their needs. However, cattle feeders feel no urgency to give in to lower prices as they can continue to feed a few cattle to heavier weights and try to capitalize on higher prices a couple of months down the road.

There is no reason to try and call the bottom of the market at this point, because it will soon reveal itself. Cattle feeders will be glad to see the turnaround in the market.

BEEF CUTOUT: At midday Friday, the Choice cutout was $191.59 up $0.59 from Thursday and down $0.63 from last Friday. The Select cutout was $186.00 down $0.72 from Thursday and down $4.18 from last Friday. The Choice Select spread was $5.59 compared to $2.04 a week ago.

It is fairly clear to see at this point that the last official grilling holiday of the summer did little to spur boxed beef prices. Boxed beef prices this week were at best steady as there was no follow through from the marginally higher prices the prior week.

With the large quantity of beef being produced and placed on the meat counter coupled with transitioning out of the grilling season, a sudden price escalation is unlikely. The increased beef production and lower wholesale prices have resulted in lower retail beef prices.

The Choice beef retail price in August was quoted at $5.97 per pound which is 13 cents lower than July and the lowest level since April. Similarly, the all fresh retail beef price in August softened a little over 2 cents per pound since the previous month to $5.79 per pound.

Retail beef prices are likely to soften the next two to three months as the market moves through the large quantities of beef and as the market moves through large quantities of pork. If the domestic market is forced to absorb the increased meat production then lower prices can be expected.

OUTLOOK: Steer and heifer prices on the Tennessee weekly auction summary were higher this week compared to last week. Steer prices were $6 to $8 higher while heifer prices were steady to $7 higher with most weight classes $4 to $7 higher. T

he price support is primarily from a rally in feeder cattle futures which have gained more than $6 over the past two weeks. The stronger futures prices will support all weight classes of calves and feeder cattle, but the primary support will be for cattle ready to enter the feedlot.

Maybe the most positive aspect of prices is that prices this week were $21 to $27 higher than the same week one year ago. The fall of 2016 was one that plagued much of the Southeast with drought and dismal cattle prices which increased financial stress and resulted in a monetary loss for many cow-calf producers. Though September 2016 prices were low, calf prices continued to decline into November.

The market in 2017 is expected to be slightly different than in 2016. Given the adequate rainfall and good forage conditions across most of cow-calf country and really good prospects for winter wheat grazing in the Southern Plains, calf prices are expected to have more support than normal through the remainder of September and possibly through the first half of October.

The price support will come from many cow-calf producers holding onto calves longer than last year and strong demand from stocker producers. This is not to say that calf prices will not soften the next four to five weeks, but they are not expected to decline as quickly as the seasonal tendency would suggest. Calf prices will likely bottom out in November before rebounding slightly in December and January.

Though prices will be higher in the fall of 2017 than they were in 2016, producers should not expect higher prices in the fall of 2018. Calf and feeder cattle values in 2018 will almost certainly be lower than in 2017. It is likely lower prices will persist into 2019 as herd expansion continues but slows to a crawl.

ASK ANDREW, TN THINK TANK: What is the economical optimum for cow size? The optimum cow size depends on the intended market for the offspring of the cow herd. Assuming the intended market is the traditional feeder cattle market and maximizing profit is an objective then it is important the calves being marketed are medium or large frame and number 1 muscled. The biggest calves are not always the most profitable! Thus, the optimal size of cow depends on total herd costs and revenues. When profit maximization is a goal, it is more important to look at total herd revenue and costs instead of costs and revenues per head. In many cases, smaller cows result in a larger carrying capacity on a head per acre basis. More cows that are smaller will largely result in more calves that are smaller at weaning. However, cattle producers are in the business of selling pounds and lighter weight calves bring a higher price than heavier calves. Thus, selling the same number of pounds but on more calves would likely result in more revenue while costs should not change much. The optimal mature cow size probably lies between 1,100 and 1,300 pounds.

Please send questions and comments to agriff14@utk.edu 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 –October $107.75 +0.83; December $112.83 +1.05; February $116.75 +1.00; Feeder cattle –September $150.23 +1.43; October $150.65 +1.05; November $150.73 +1.25; January $147.53 +1.30; December corn closed at $3.55 up $0.01 from Thursday.

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