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The University of Tennessee | Institute of Agriculture

Department of Agricultural and Resource Economics

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Weekly Livestock Comments

By Dr. Andrew P. Griffith

April 11, 2014

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FED CATTLE: Fed cattle trade was not well established at press. Bids on a live basis were $146 while dressed bids were $236 to $238. Asking prices were $150 in the South and $243 plus in the North. The 5-area weighted average prices thru Thursday were $149.32 live, down $2.11 from last week and $240.29 dressed with no trade reported last week. A year ago prices were $127.23 live and $199.38 dressed. Short bought packers were reluctant to continue paying up for fed cattle as wholesale beef prices have been faltering. Limited fed cattle offerings and weakness in beef trade has placed processors between a rock and a hard place as many were in a situation where they had to buy cattle to keep the chains in motion. Leverage continues to be held by feeders, and they continue to take advantage of that leverage since it is on a short fuse. As fed cattle marketings seasonally increase into the summer months, leverage will shift to the packer who will then be trying to make up for losses being witnessed currently. Fed cattle prices will soften as marketings increase but it remains to be seen how low they will dip.

BEEF CUTOUT: At midday Friday, the Choice cutout was $222.27 down $2.73 from Thursday and down $6.90 from last Friday. The Select cutout was $212.96 down $1.34 from Thursday and down $5.49 from last Friday. The Choice Select spread was $9.31 compared to $10.72 a week ago. As was discussed last week, volatility in the beef market is alive and well. Wholesale Choice beef prices have declined more than $18 since March 21st while Select beef prices have declined nearly $24 since March 14th. The volatility in the market is likely to persist as the pendulum continues to swing. Prices may be headed south at the current time but grilling demand has the potential to turn the tide back to the positive side with hot summer months turning it yet again. Packers are struggling with negative margins as fed cattle prices remain strong relative to beef prices. At the same time wholesale beef prices have declined 8 to 10 percent, fed cattle prices have remained fairly steady. One competing meat factor that will support beef prices is porcine epidemic diarrhea virus. The virus has greatly reduced the average litter size and will greatly reduce total pork production in the coming months which will result in pork price increases. Increases in pork price at the same time beef prices are setting records will contribute to keeping beef consumers from trading pork for beef.

TENNESSEE AUCTIONS: On Tennessee auctions this week compared to a week ago, feeder steers and bulls under 550 pounds were $1 to $4 higher with those over 550 pounds steady to $1 lower. Heifers were $1 to $4 higher. Slaughter cows were mostly steady whiles bulls were $1 lower. Average receipts per sale were 581 head on 12 sales compared to 633 head on 12 sales last week and 836 head on 11 sales last year.

OUTLOOK: Grass will soon be in abundance across the state especially on pastures that have had some nitrogen spread across the top. Many producers are already grazing fresh pasture while others are looking forward to hay harvest in four to six weeks. Many stocker producers are in the market this week to finish securing "grass cattle" that they can carry through the summer and then market by mid-August when yearling cattle prices tend to reach their apex. Steers weighing 525 pounds were reported averaging $1,076 on weekly auction markets this week. If they average two pounds a day for 120 days at a cost of gain of $0.80 per pound then they could be marketed at 765 pounds in the middle of August with a break-even price of $166 per hundredweight. The current market continues to look positive for positive margins in the stocker business because many stocker producers will be able to achieve a cost of gain less than $0.80 and prices in August for 765 pound steers are likely to be $12 to $15 per hundredweight greater than the break-even price projection. The primary risk in the stocker business is not price though. The risk in this business is the tremendous financial risk producers are facing due to the extremely high purchase price. Stocker producers are investing about 50 percent more per head in 2014 than they were investing two or three years ago while margins, though positive, are similar to previous years. At first glance this may not appear to be a problem but the problem lies in death loss. If death loss has remained constant, in previous years it may have taken the profits from five to seven animals to make up for the death loss of one animal whereas in the current market it may take twelve to fourteen animals. Such a market provides less economic incentive for stocker producers to enter the business, because it suppresses profit potential if resources remain constant. Lightweight calf prices will soon start tapering while heavier feeder cattle prices will continue to be fairly steady with some opportunity for strengthening.

TECHNICALLY SPEAKING: Based on Thursday's closing prices, April closed at $144.00. Support is at $143.47, then $142.59. Resistance is at $144.34, then $145.22. The RSI is 50.19. June closed at $135.20. Support is at $134.72 then $133.72. Resistance is at $135.72, then $136.72. The RSI is 46.12. August closed at $133.13. Support is at $132.80, then $132.00. Resistance is at $133.50, then $134.75. The RSI is 47.46. May feeders closed at $179.68. Support is at $179.16, then $178.11. Resistance is at $180.21 then $181.26. The RSI is 59.41. August feeders closed at $181.93. Support is at $181.75, then $180.58. Resistance is at $181.98, then $181.99. The RSI is 63.64. November feeders closed at $181.03. Support is at $181.00, then $180.25. Resistance is at $181.10 then $181.13. The RSI is 67.85. Friday's closing prices were as follows: Live/fed cattle –April $144.85 +0.85; June $135.78 +0.58; August $133.78 +0.65; Feeder cattle - May $180.08 +0.40; August $182.48 +0.55; October $181.73 +0.30; November $181.70 +0.68; May corn closed at $4.98 down $0.03 from Thursday.