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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

August 28, 2015


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FED CATTLE: Fed cattle traded $4 lower on a dressed basis compared to a week ago. Live prices were $144 to $145 while dressed trade occurred between $227 and $228. The 5-area weighted average prices thru Thursday were $143.40 live, down $3.87 from last week and $226.97 dressed, down $5.58 from a week ago. A year ago prices were $154.56 live and $242.98 dressed. The fed cattle market continues to slide this week as it appears new summer lows are being witnessed. It was thought that summer lows in the fed cattle market had already been experienced and the expectation was for some sideways trading until the fall market peaked buyer’s interest. However, negative news from the macro economy is wreaking havoc on both the stock market and the commodity market. The negative global news of a slowing economy in China coupled with reduced beef supplies domestically has compounded struggles across the beef complex as well as across other commodities. There could be further downside for fed cattle but the expectation is for prices to pick themselves up by the bootstraps and recover some lost ground.
 
BEEF CUTOUT: At midday Friday, the Choice cutout was $243.63 down $0.58 from Thursday and down $1.14 from last Friday. The Select cutout was $232.83 down $0.29 from Thursday and down $1.99 from last Friday. The Choice Select spread was $10.80 compared to $9.95 a week ago. The one market that was not turned upside down this week was the beef market. Both the Choice and Select cutout price stood fairly firm this week in the wake of plummeting commodity prices. There is no guarantee they will continue to be a support for the fed cattle and feeder cattle market, but it does provide some solace that the sky is not actually falling on the beef industry. Beef prices are not expected to make any big moves the next several weeks as they are being supported by late Labor Day purchases. Wholesale beef prices will likely struggle following the Labor Day holiday until buying picks back up for the winter holidays. How far they are likely to fall is unknown and the best packers can hope for is for a steady market through September and October. They do not want a stagnant market, but a steady market would provide support to fed cattle and feeder cattle. The export market remains the key factor as well as the major unknown. If foreign economies such as China go into a recession mode then it may prove difficult to move beef products.

OUTLOOK: The old saying is “What goes up must come down.” The coming down part is exactly what happened this week in the cattle markets. Slaughter cow prices fell $4 to $6 based on the Tennessee weekly auction market average. Even more drastically, steer and heifer prices took a big hit. Steers under 600 pounds were $13 to $20 lower while steers 600 pounds and over were down $7 to $9. Similarly, heifers were $9 to $13 lower this week compared to one week ago. Many producers are asking themselves what they should do about marketing their calves while others are kicking themselves for not having already marketed their calves. First off, there is no reason to worry about the past because it cannot be changed. Rather, producers should develop a plan for the future and that includes this fall marketing period and for years to come. Thus, for the immediate future, producers should not get too excited about what has happened in the market. A lot of factors are at work with this downturn in prices including economic troubles in China, strengthening value of the dollar, potential that the Federal Reserve Bank may increase interest rates, and many more. However, traders tend to overreact to negative news which pushes the market further south than what the situation actually calls for. With that being said, feeder cattle markets are likely to rebound to some degree. They are not likely to regain all that they lost because feeder cattle were probably overvalued prior to the price collapse, but they will regroup and make a small press forward. Producers should remain diligent in watching markets and market signals that may indicate price changes in the near term. In the longer run, producers should begin thinking about price risk management tools. The price swings in the feeder cattle market have ranged greatly in the past 18 months or so and it is likely these price swings will persist for several months to come. If a favorable pricing opportunity comes available then producers should consider taking advantage of that opportunity to secure a certain profit and to reduce price risk associated with market fluctuations.

ASK ANDREW, TN THINK TANK: A question was brought forth recently regarding cattle prices and other commodity prices declining due to the stock market losing several points the past week and a half. The question was more specifically focused on why feeder cattle prices should be impacted by the stock market. The simple answer is that we live in a global economy, and any negative shock to the economy will likely negatively impact normal goods. Beef is considered a normal good for most consumers and thus is impacted negatively by negative economic news. If disposable income of the consumer is negatively impacted then it is likely they will change their purchasing habits which will impact both stock markets and commodity markets

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 $144.00 +1.45; December $146.03 +1.18; February $145.95 +1.28; Feeder cattle - September $202.88 +2.53; October $199.33 +2.25; November $196.78 +1.93; January $190.88 +1.88; September corn closed at $3.63 down $0.01 from Thursday.