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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

April 21, 2014

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FED CATTLE: Fed cattle traded $1 lower on a live basis compared to last week. Prices on a live basis were $146 to $148 while dressed prices were mostly $236 to $238. The 5-area weighted average prices thru Thursday were $147.08 live, down $2.24 from last week and $234.70 dressed, down $5.59 from a week ago. A year ago prices were $125.23 live and $200.00 dressed. Feeders have been getting their piece of the pie plus some the past few months while packers have been reeling in large losses with every pound of beef processed and shipped. However, the leverage may be starting to show signs of shifting from the feeder to the packer as packers were able to purchase cattle on a lower market. The slight decline in prices is not a deal breaker for feedlot managers as they have been capturing the majority of the margin that feedlots and packers sometimes share. Lower prices will certainly result in a margin reduction of feedlots, but it is a long way from placing closeouts in the red. On the other hand, the small price decline will give packers a little momentum on the cost reduction side to improve margins.

BEEF CUTOUT: At midday Friday, the Choice cutout was $226.10 up $0.22 from Thursday and up $3.83 from last Friday. The Select cutout was $215.08 down $0.35 from Thursday and up $2.12 from last Friday. The Choice Select spread was $11.03 compared to $9.31 a week ago. Packers got the best on both ends of their margin this week as slaughter cattle prices declined and wholesale beef prices escalated. The decline in fed cattle prices reduced costs and the increase in beef prices increased revenue which will be beneficial in improving packer margins. The late Easter holiday has likely contributed to some of the pressure beef markets have been witnessing the past few weeks as retailers have been featuring more traditional Easter meats such as pork. As Easter succumbs to time, beef movement is likely to pick up as retailers and restaurants gear up for grilling season with Mother's Day and Memorial Day in the coming weeks. Beef prices seasonally strengthen in late April and early May which is expected again this year, but they are not expected to exceed previous highs set in the first quarter of the year. The Choice Select spread is expected to widen the next couple of months, but it may not widen as much as usual as reduced cow slaughter may lead some "cow meat" buyers into the Select meat market to fill contract orders.

TENNESSEE AUCTIONS: On Tennessee auctions this week compared to a week ago, feeder steers and bulls were mostly steady. Heifers were steady to $2 higher. Slaughter cows and bulls were mostly steady. Average receipts per sale were 635 head on 12 sales compared to 581 head on 12 sales last week and 598 head on 12 sales last year.

OUTLOOK: Demand for all classes of cattle remains fairly constant this week compared to last week with prices remaining consistent with a week ago prices. As the last of grass cattle orders are being filled, lightweight calf prices will slowly erode over the next few weeks and will find it difficult to establish firm footing anytime in the near future. Prices for lightweight cattle could be supported this summer if air temperatures remain relatively cooler than normal and if rainfall is adequate to maintain quality forages. Most producers, however, will not be betting the farm on favorable forage conditions as it is not a question of if we will have drought but rather a question of when and how long it will last. The last two years are prime examples of polar opposites from a forage standpoint. Drought encompassed the majority of the nation in 2012. Relief from the drought did not occur in Middle and East Tennessee until July while West Tennessee dealt with a shortage of moisture for an extended period of time. On the other hand, moisture conditions in 2013 promoted some of the best grazing conditions the state has seen in a number of years. Rainfall was so frequent that many producers had difficulty harvesting hay without it getting rained on at least once. These same two years and the impact weather related events had on grain crop production led to contra-seasonal price movements for many classes of cattle in the fall of 2013. However, last year's contra-seasonal price movements are not likely to occur this fall. Current and expected future cattle prices as well as forage and feed availability are important considerations at this juncture as many producers wrestle with the decision to market fall born calves straight off the cow or to wean and precondition fall born calves for marketing at a later date. Prices are relatively strong for lightweight stocker calves at this time, and feeder cattle prices are expected to remain strong throughout the year. Therefore, the decision to be made is if a producer is willing to take production and price risk. Both of which can be mitigated to a certain degree.

TECHNICALLY SPEAKING: Based on Thursday's closing prices, April closed at $144.20. Support is at $143.42, then $141.47. Resistance is at $145.37, then $147.32. The RSI is 49.54. June closed at $134.38. Support is at $133.73 then $132.08. Resistance is at $135.38, then $137.03. The RSI is 42.01. August closed at $132.83. Support is at $132.45, then $132.00. Resistance is at $133.15, then $133.70. The RSI is 45.36. May feeders closed at $178.05. Support is at $177.45, then $175.70. Resistance is at $179.20 then $180.95. The RSI is 50.30. August feeders closed at $181.40. Support is at $181.25, then $180.58. Resistance is at $182.58, then $182.98. The RSI is 56.95. November feeders closed at $180.68. Support is at $180.65, then $180.53. Resistance is at $181.43 then $181.60. The RSI is 61.60. The Chicago Mercantile Exchange was closed on Friday in observance of Good Friday prior to Easter. May corn closed at $4.95 down $0.03 from Wednesday.