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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

February 17, 2017


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FED CATTLE: Fed cattle traded steady compared to last week on live basis. Prices on a live basis were mainly $119 to $120 while dressed prices were mainly $190. The 5-area weighted average prices thru Thursday were $118.97 live, down $0.78 from last week and $187.44 dressed, down $2.62 from a week ago. A year ago prices were $130.00 live and $209.63 dressed. Cattle feeders have little to complain about this week as finished cattle prices stood their ground despite packers’ best efforts to push prices lower and positive margins persist another week. It is difficult to predict the direction of the market, because there is little reason to be bullish or bearish toward the market. The seasonal expectation would be for finished cattle prices to push higher through April before declining into the summer months. However, it may be difficult for finished cattle to make much of a spring run given the current price level. Cattle continue to trade with a strong positive basis relative to the futures market, and it is likely to continue unless fundamentals change in some way.

BEEF CUTOUT: At midday Friday, the Choice cutout was $190.37 up $1.15 from Thursday and up $2.33 from last Friday. The Select cutout was $189.31 up $1.12 from Thursday and up $2.75 from last Friday. The Choice Select spread was $1.06 compared to $1.48 a week ago. Boxed beef prices found some underlying support this week as modest gains were evident in the composite beef cutout price. The round and chuck primal cuts are trying to provide support for wholesale beef prices, but the weakness in the February market is making it difficult to push prices higher. It is always important to note the narrowing of Choice Select spread during the winter months. This is a common occurrence as consumers alter meat cooking and preparation through the winter months. Consumers do not differentiate between Select and Choice grade chuck, round, brisket, and short plate items. Thus, Choice and Select grade chuck, round, and short plate primal values were close to parity this week. The Select grade brisket primal value actually experienced some higher prices than the Choice grade brisket. Also at play is the increased percentage of cattle grading Choice or higher. Close to 73 percent of cattle have graded Choice in 2017 compared to a five year average of nearly 66 percent of cattle grading Choice. At the same time, the percentage grading Select has declined.

OUTLOOK: Calf and feeder cattle prices were stronger this week based on Tennessee weekly auction data. The warm weather, adequate precipitation and greening of pastures have lightweight calves in high demand. Producers wanting to move calves that are lightweight should probably do so by the first week of April. Alternatively, producers with lightweight calves could capture some value by weaning and adding weight to those animals through the spring. At the same time, stocker producers looking to secure spring inventory for grazing purposes should evaluate pasture potential and begin purchasing animals. If animals cannot be purchased soon then the next best purchase opportunity may not present itself until late May or early June at which point cool season grass production wanes. This is as good a time as any to be thinking about marketing opportunities and price risk management alternatives. For producers marketing truckload lots, the futures market is a viable alternative. From the March feeder cattle contract through the September contract, $1.20 per hundredweight separates the highest price from the lowest price. It is possible the market trades steady from March through September, but it is highly unlikely. If there is an opportunity to lock in a profit with the sale of a futures contract or lock in a profitable price floor with a put option then it may be advisable to do so within the next few weeks. If one feels certain the futures market has prices pegged right now with little variation in prices the next seven months then remaining idle may be the correct decision. For smaller producers, livestock risk protection insurance is available and it allows a cattle producer to set a price floor for a premium payment. Regardless of the price risk management decision, producers should be evaluating spring marketing alternatives in order to garner as much value as possible. Great value is not going to come in the form of a tremendous price escalation in 2017 but rather through cost management and savvy marketing.

ASK ANDREW, TN THINK TANK: Sometimes we all need to be reminded of labor processes, management techniques, and where the true value is in the cattle business. For the most part, reminders for labor and management naturally come with the territory of production. However, sometimes cattle producers forget where the true value of the animal they are producing comes from. The value of cattle comes from the value consumers place on beef and beef products. It may not always seem like the retail price of beef reflects the price of a 500 pound steer, but it does if we understand the ripple effect. The simple economics are supply and demand. The industry continues to attempt to grow demand while producers change beef supply based on cattle prices. Cattle prices were very strong for two years which increased cattle inventory which has and will continue to increase beef production. Increased supply will put pressure on beef and thus cattle prices.

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 –February $117.93 +1.40; April $114.93 +1.68; June $105.38 +1.22; Feeder cattle –March $124.08 +0.25; April $124.20 +0.45; May $123.28 +0.68; August $124.50 +0.63; March corn closed at $3.75 up $0.05 from Thursday.