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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

January 20, 2017


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FED CATTLE: Fed cattle traded $3 to $4 higher compared to last week on live basis. Prices on a live basis were mainly $122 to $123 while dressed prices were mainly $194 to $195. The 5-area weighted average prices thru Thursday were $121.89 live, up $3.45 from last week and $194.82 dressed. A year ago prices were $126.62 live and $202.00 dressed. Fed cattle prices continue increasing which continues to increase cattle feeding margins. The one thing that has slowed down cattle feeders is the winter weather. A fairly severe ice storm traveled through much of the Plains states and Midwest earlier in the week which was sure to negatively impact feed efficiency and growth. Cattle feeders, however, often battle the elements and one ice storm will not knock them down. From a price standpoint, cattle feeders have not experienced year over year price increases for finished cattle since June 2015. Prices in 2017 have made a run to catch 2016 prices, but it may be late summer before the market sees a week where 2017 prices exceed 2016 prices. Cattle feeding looks profitable in the near term.

BEEF CUTOUT: At midday Friday, the Choice cutout was $190.24 down $1.36 from Thursday and down $0.20 from last Friday. The Select cutout was $187.98 up $0.49 from Thursday and up $1.05 last Friday. The Choice Select spread was $2.26 compared to $3.51 a week ago. Beef cutout prices found some stability this week which resulted in minimal change from the previous week. This may be viewed positively or negatively from the packer’s standpoint. The positive to take from prices remaining fairly steady is because wholesale beef prices were caught in a landslide the previous two weeks. Alternatively, packers may view steady beef prices negatively because they were forced to continue paying higher prices for finished cattle. With packer margins continuing to decline, industry participants are waiting to see how the packer will respond. Will packers slow chain speeds to increase prices? In the short term, the answer is likely no since many packers have forward beef sales they must deliver in coming weeks. In the longer term, packers will probably reduce chain speeds and also reduce how far out they are willing to forward contract meat. The beef industry is not in the business of buying and selling beef, but they are rather in the business of buying and selling risk. More risk equates to the potential for greater loss and greater reward.

OUTLOOK: Calf and feeder cattle markets were steady to slightly softer compared to a week ago based on Tennessee weekly auction market data. For January, there was a strong run of cattle which can likely be attributed to warm weather and fairly strong market prices. In addition to warm weather and price strength, there are likely many producers moving cattle due to the potential of running out of hay before spring green up. Even with two plus weeks of spring like temperatures and abundant rainfall, pastures have produced little forage while providing weeds a chance to take hold. The severely dry summer and fall resulted in hay being fed earlier than anticipated and decimated pastures which will result in the need to renovate pastures and increased costs of feeding cattle through 2017. Based on USDA’s Crop Production Summary for 2016, hay production in Tennessee increased less than one percent from 2015 while neighboring states Alabama (-16.8%), Georgia (-3.2%), Kentucky (-1.9%), Mississippi (-10.0%), and North Carolina (-15.0%) all experienced declines in hay production. Reduced hay production and a longer winter feeding period will put severe stress on many Southeastern cattle producers as they search for additional feed resources. Thus, the shortage of forage and hay has some producers moving animals earlier than normal. Softer cattle prices this week should not be of much concern to those in the industry. Calf prices will garner a little support as spring approaches which will keep many producers happy. Yearling cattle prices appear to be headed for a flat trend over the next several months, but flat prices will continue to offer backgrounding operations an opportunity to be profitable. Cow-calf producers should continue to keep an eye on the slaughter cow market as it will be seasonally increasing into May and possibly June. Producers should weigh the cost of feeding those cows the next few months to the additional revenue that may be garnered as prices increase and as the cows gain weight.

ASK ANDREW, TN THINK TANK: The opportunity to speak to producers in Clinton, North Carolina arose this week. It was a unique opportunity because most of the cattle producers make their living either producing hogs, chickens, or both. In this area, cattle production is a byproduct of hog and broiler production. This occurs because the producers fertilize and irrigate hay fields with the waste from the other two operations. Thus, the question raised by more than a couple producers was “How do we get cattle producers to start thinking about cattle production as its own enterprise?” There is no firm answer, but financial analysis could help. In reality, cattle production increases the value of hog and poultry production in Eastern North Carolina. This does not mean cattle production is profitable, but demonstrating changes in whole farm profits from cattle production may result in more effort in the cattle production.

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 $120.25 -0.78; April $118.98 -0.90; June $108.70 -0.48; Feeder cattle –January $133.10 +1.15; March $131.28 +1.13; April $130.10 +0.63; May $128.50 +0.45; March corn closed at $3.70 up $0.04 from Thursday.