Weekly Livestock Comments
By Dr. Andrew P. Griffith
November 20, 2015
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FED CATTLE: Fed cattle traded $3 lower on a live basis compared to a week ago. Cattle sold on a live basis were mainly $123 to $125 while dressed prices were $194to $195. The 5-area weighted average prices thru Thursday were $123.00 live, down $3.27 from last week and $194.50 dressed, down $6.97 from a week ago. A year ago prices were $169.00 live and $265.00 dressed. Finished cattle continued their decline as all markets in the cattle complex trended lower compared to one week ago. Many feedlot managers have been asking when some relief would come to the large losses being experienced. The relief may not be come until lower priced feeder cattle are worked through the system. The cattle coming off feed in the current time period were fairly high priced feeder cattle four to six months ago. It will take another three or four months before some of the lower priced cattle that were placed in September and October will be coming off feed. There is a possibility that feedlot managers’ fortunes change from terrible today to fairly decent in the spring.
BEEF CUTOUT: At midday Friday, the Choice cutout was $204.77 down $0.06 from Thursday and down $4.60 from last Friday. The Select cutout was $192.99 down $0.35 from Thursday and down $7.95 from last Friday. The Choice Select spread was $11.78 compared to $8.43 a week ago. It would be a stretch to say beef cutout prices are “good” or “strong.” However, they are holding up better than the cattle markets at this time. The market has finally started to see some significant widening of the Choice Select spread. It is a seasonal tendency for the Choice Select spread to widen in November and December as the holiday season fast approaches. The general hope of this widening for cattle industry participants is that the Choice price strengthens relative to the Select price, but it appears that the Choice price is not weakening as quickly as the Select price. Choice beef buying will continue to pick up the next couple of weeks, but industry participants should continue to prepare for further declines in beef cutout prices as we head through the winter. Even though cutout prices have declined, the retail price of beef will be slower to react as retailers try to make up for the losses experienced when cutout prices were increasing. Retail prices remaining elevated will continue to keep some consumers on the sideline when referring to beef.
OUTLOOK: There are very few positives if any at all with regard to cattle and beef markets. Cattle prices continue to spiral out of control as feeder cattle prices and slaughter cow prices continue their downward tail spin. The price correction from the fourth quarter of 2014 has been exacerbated with the seasonal decline in calf and feeder cattle prices that generally occurs in late fall and early winter. If we set the seasonal price trend aside momentarily and just consider what is driving the price down then we may have a better understanding of what we can expect prices to do in the spring and summer of 2016. The cattle herd is growing which means more calves are coming into production and will eventually enter the feedlot. However, prior to the price decline that began in August, there was incentive for cattlemen to keep cattle in the country on grass, because the value of gain was greater than the cost of gain. Thus, many of those cattle entered the feedlot at a much later time than would be normal. It is likely many of those cattle stayed on pasture even when prices began to decline as it would have been easy to think that prices would rebound in the near term. However, prices did not rebound and it is likely we have more than one full calf crop being moved to the feedlot at this time due to the holdover of last year’s calf crop. Producers should not be expecting a price resurgence before the end of the year in relation to calves or yearling cattle. Further declines in the yearling market are becoming less likely but more downward pressure is possible. Fundamentals of the cattle market will likely provide support to yearling and calf prices by February or March which means there may be incentive for producers to hold on to calves for a few more months. Similarly, there appears to be a nice purchasing opportunity for producers wanting to place calves on stockpiled forage and winter annual pastures. There is no crystal ball in this analysis, but seasonal patterns and daily analysis suggest this price movement. Volatility in the feeder cattle market is likely to remain high, but volatility will not lose the farm if a marketing plan is established.
The November cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of November 1, 2015 totaled 10.79 million head, 2.1% higher than a year ago, with the pre-report estimate average expecting an increase of 2.2%. October placements in feedlots totaled 2.28 million head, down 3.7% from a year ago with the pre-report estimate average expecting placements down 3.9%. October marketing’s totaled 1.63 million head down 3.3% from 2014 while the pre-report estimate expectation was down 3.9%. Placements on feed by weight: under 800 pounds down 7.1% and 800 pounds and over up 5.5%.
ASK ANDREW, TN THINK TANK: Two times this week, producers have inquired about purchasing thin cows to stocker through the winter. The idea would be to purchase lean cows and use inexpensive forage to put weight on the cows and essentially upgrade them to boning utility by April or May. This practice may be a good alternative for some producers who have plenty of inexpensive feed. Producers can generally add 100 pounds or more to the cow. Additionally, producers can reap price benefits as boning utility cows are generally $10 per hundredweight higher and the seasonal tendency is for slaughter cow prices to increase through the spring. This is not a business for everyone.
Please send questions and comments to email@example.com 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 – December $129.63 -0.28; February $131.88 -0.18; April $132.50 -0.08; Feeder cattle - January $162.98 +0.53; March $161.40 +0.85; April $163.05 +0.90; May $163.63 +0.80; December corn closed at $3.63 down $0.01 from Thursday.
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