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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

September 23, 2016


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FED CATTLE: Fed cattle traded $2 to $3 lower on a live basis compared to last week. Live prices were mainly $105 to $107 while prices on a dressed basis were mostly $167 to $168. The 5-area weighted average prices thru Thursday were $106.63 live, down $0.35 from last week and $167.90 dressed, down $0.15 from a week ago. A year ago prices were $129.33 live and $202.48 dressed. The summer lows for finished cattle are in but that is only because summer has passed on the calendar. After a resurgence in prices last week, fed cattle prices took a tumble again this week as futures market prices could not maintain support. Cattle feeders are in desperate need of price support as they continue to be deep in the red. Cattle feeders are not losing as much money as they did early in the year due to lower feeder cattle prices, but the mounting losses have them between a rock and a hard place. The market is sure to turn back to the positive side, but it sure is slow to do so. Cattle feeders should expect the market to slowly grind to higher prices moving from October to November.

BEEF CUTOUT: At midday Friday, the Choice cutout was $187.17 down $0.20 from Thursday and up $1.11 from last Friday. The Select cutout was $179.31 down $0.31 from Thursday and up $0.78 from last Friday. The Choice Select spread was $7.86 compared to $7.53 a week ago. After five weeks of price declines, wholesale beef prices found support and turned around this week. The turnaround was not much more than a turnaround with slight gains compared to last week. Wholesale prices of are little worry to the packer at this point since the market appears to be turning back in their favor this week and margins are still positive. Good news came for the beef and cattle sectors from China earlier this week when Chinese leaders announced they would begin accepting imports of U.S. and Canadian beef. However, the market will be slow to react as it waits on the specific terms under which China will import beef. On the opposite end of the spectrum, information was released recently concerning U.S. beef imports from Brazil. Several facilities in Brazil have been inspected and approved to export fresh and frozen beef to the U.S. The impact of this decision is expected to be fairly small the next few years, but as policies and trade agreements change, the acceptance of Brazilian beef into the U.S. could change trade dynamics and markets.

OUTLOOK: Based on Tennessee auction averages this week, steer and heifer prices were steady to $2 higher than last week. The steady to positive price movement on the cash market was supported by the slight strength in the feeder cattle futures market. However, seasonal cash price tendencies are working against the market. It does appear that a few animals are beginning to make their way to town, but most producers have yet to set wheels under their fall calf crop due to high temperatures and the hope for a price resurgence. There is one thing for sure and two things that are certain, the one for sure thing is that cattle producers will sell calves and the two certain things are that temperatures will decline the next few months and producers marketing freshly weaned calves in October and November will receive a lower price than today. As fall calf marketings increase, prices are expected to continue declining. There has been news that is positive for beef and cattle prices, but none of the news that has broken so far is a market shifter. Based on Tennessee weekly auction market average prices, a 525 pound steer is worth $658. The expected value of gain is 98 cents when carrying that animal for 120 days and 240 pounds. Based on the weight class and a similar production scheme, the value of gain on starting weights ranging from 425 to 625 pounds is 91 cents to $1.07. The market is incentivizing those who can add weight to calves. Producers should consider weaning, preconditioning, and backgrounding calves this fall and early winter if at all possible. These production practices will require marketing the animals through a feeder calf sale, marketing alliance, or through some method where load lots are sold to capture all of the value. The problem that is arising is that a freshly weaned calf cannot pay the bill to keep the cow around. When the cost to maintain a cow for a year exceeds the value of the calf then real problems begin to arise.

The September cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of September 1, 2016 totaled 10.14 million head, up 1.5% from a year ago, with the pre-report estimate average expecting an increase of 1.2%. August placements in feedlots totaled 1.88 million head, up 15.1% from a year ago with the pre-report estimate average expecting placements up 13.1%. August marketing’s totaled 1.87 million head up 17.6% from 2015 which corresponds with pre-report estimates. Placements on feed by weight: under 600 pounds down 8.9%, 600 to 699 pounds up 34.9%, and 700 pounds and over up 20.3%.

ASK ANDREW, TN THINK TANK: I received a question this week concerning the cost of carrying a cow in 2017. This is an important question considering the significant decline in cattle prices. The question itself was associated with the annual budget we construct. In 2016, the projected variable costs totaled $689 per head while the total cost was $1,029 per head. There are certainly producers in Tennessee that have much lower costs than the cost presented, but there are also producers who have a higher cost. Many times total cost get to extremely high levels due to fixed expenses related to buildings, equipment, and breeding stock. Producers are encouraged to identify all costs so they can evaluate methods to reduce costs without negatively impacting 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 – October $107.28 +0.20; December $106.85 -0.10; February $107.10 -0.23; Feeder cattle – September $136.83 -0.18; October $132.38 +0.08; November $129.73 +0.22; January $125.33 -0.10; December corn closed at $3.37 down $0.01 from Thursday.