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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

July 24, 2015


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FED CATTLE: Fed cattle traded $1 to $2 lower on a live basis compared to a week ago. Live prices were mainly $144 to $146 while dressed trade was mainly $231 to $233. The 5-area weighted average prices thru Thursday were $145.40 live, down $0.60 from last week and $232.03 dressed, down $2.97 from a week ago. A year ago prices were $162.86 live and $256.13 dressed. Live cattle continue working toward their summer lows which may happen in the next week or two. The decline in fed cattle prices continues to be very much in line with the typical fall off from spring highs to summer lows. Fed cattle prices have fell nearly $22 per hundredweight since the first week of April which represents about a 13 percent decline in prices. From 2010 to 2014, fed cattle prices averaged a 9.8 percent decline from the spring high to the summer low with a range from 5 percent to nearly 15 percent over the five year period. Fed cattle continue to have price loss potential the next couple of weeks, but prices should find their summer low and then have potential to stagnate.
 
BEEF CUTOUT: At midday Friday, the Choice cutout was $231.00 down $1.59 from Thursday and down $2.31 from last Friday. The Select cutout was $228.60 up $0.64 from Thursday and down $1.08 from last Friday. The Choice Select spread was $2.40 compared to $3.63 a week ago. The boxed beef price skid slowed this week. The lower price being experienced in the beef cutout is being led by a collapse in rib and loin prices which have declined between 18 and 26 percent from their spring highs. On the flip side of the coin, beef full tender prices and chuck prices have maintained their footing and continue to support prices as both have been trading above or near year ago prices for several months. Another factor contributing to the decline is fresh 50 percent lean beef prices. Fresh 50 percent lean beef is trading around $65 per hundredweight which is about 47 percent lower than the spring high witnessed in April. On the surface, it may not be apparent what caused the dramatic downturn in prices, but it is likely due to lean beef imports. In the first five months of the year, the United States has imported 37 percent more beef and veal than in the same five month period in 2014. Most of the imported beef is from lean beef sources. Nearly 35 percent of beef imports have come from Australia whose imports are 65 percent higher through May than a year ago.

OUTLOOK: Cattle markets continue to succumb to the doldrums of summer. Every market within the cattle complex appears to be searching for their summer lows, but none appear to have reached rock bottom. After finding the bottom, prices are expected to rebound. However, prices are not expected to challenge record prices from a year ago. The market has likely reached the place where prices will slowly begin to erode as beef cow inventory continues to expand and as heifer retention increases. The increase in cows and heifers will eventually lead to larger numbers of feeder cattle which will then lend itself to the slow erosion of prices the next several years. The one plus side to a slow erosion of prices is that prices are not expected to drop off the map by any stretch of the imagination. Prices will continue to be strong relatively speaking which should mean several years of strong profitability for cow-calf producers. The slow erosion of prices may also benefit stocker, backgrounding, and feedlot operations as the total investment in the animal will be reduced relative to the total investment experienced during record price times. A slow erosion does not mean profits for margin operators, but margin operators should have the opportunity to utilize risk management strategies that can reduce price and revenue risk.

The July cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of July 1, 2015 totaled 10.24 million head, 1.9% higher than a year ago, while the pre-report estimate average had cattle on feed up 1.6%. June placements in feedlots totaled 1.48 million head, up 0.9% from a year ago with the pre-report estimate average expecting placements down 0.9%. June marketing’s totaled 1.75 million head down 5.4% from 2014 while the pre-report estimate expectation was down 5.4%. Placements on feed by weight: under 600 pounds down 13.6%, 600 to 799 pounds up 2.3%, and 800 pounds and over up 11.2%.

ASK ANDREW, TN THINK TANK: Earlier this week, Chuck in Dyer observed that ribeyes produced and processed in the U.S. were selling for $9.99 per pound while beef produced and processed in Mexico was $4.99 per pound. The question here is if consumers may pick up the less expensive beef and if they have a bad eating experience could that hurt demand for beef produced in the United States. The U.S. primarily uses a grain based finishing system resulting in a highly marbled beef product that is tender, juicy and flavorful. However, the grain finished system contrasts most other countries that produce a lean beef product from forage based systems. Mexico has transitioned from a carcass based system to a boxed beef system, led by a company named SuKarne. However, Mexican beef is not a direct competitor with beef produced in the U.S., because Mexicans and many other immigrants do not have the preference for marbling. Mexican fabricated beef sitting beside beef produced in the United States is not a new phenomenon. The two products target different consumers and the expectation is they will be treated as such by consumers. Studies have found consumers recognize marbling and color differences and make purchases based on those observations. Thus, it is not likely a less marbled beef product from Mexico will greatly influence demand for U.S. beef. Research shows consumers differentiate between certain attributes in beef products and that they are willing to pay for certain attributes. If certain attributes are in high demand then the market will adjust to meet the demand.

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 –August $142.98 -0.38; October $144.05 -0.60; December $146.85 -0.63; Feeder cattle - August $209.75 -0.03; September $207.48 -0.15; October $205.88 +0.15; November $204.80 +0.78; September corn closed at $3.93 down $0.11 from Thursday.