US Cattle Feeders Delay Trade in Hopes of Bull Market
Fed cattle trade was not well established at press. Asking prices were $125 to $126 on a live basis while bid prices were $121 to $123, writes Dr. Andrew Griffith, University of Tennessee Extension Assistant Professor and Extension Livestock Economist.
1 February 2019
5 minute read
The 5-area weighted average prices thru Thursday were $123.12 live, up $0.08 from last week and $198.59 dressed, up $2.10 from a week ago. A year ago prices were $125.91 live and $199.90 dressed.
Cattle feeders and packers have consistently delayed weekly cattle trade until the end of the week for several consecutive weeks. Cattle feeders are holding onto hopes of a bull market (higher prices) while packers think a bear market (lower prices) is on the horizon. Neither a bull nor a bear market has materialized and both entities appear to be fighting the wind.
Cattle feeders have their eyes set on year ago prices which nearly reached $130 based on the 5-area weighted average price during the third week of February and stayed near $126 or higher through the end of March. The key this year will be for cattle feeders to maintain prices in the mid $120 area or higher April and into May. The little bit of leverage they have now will help.
BEEF CUTOUT
At midday Friday, the Choice cutout was $214.07 down $1.32 from Thursday and down $3.33 from last Friday. The Select cutout was $213.18 up $0.30 from Thursday and up $0.89 from last Friday. The Choice Select spread was $0.89 compared to $5.11 a week ago.
The weekly percentage of steers and heifers grading Choice during 2018 ranged from 69.6 percent to 73.3 percent with only three weeks falling below the 70 percent Choice mark. In 2016, the weekly percentage of steers and heifers grading Choice ranged from 68.0 percent to 72.2 percent with 26 weeks of sub-70 percent. Compare that to the 2014 production year when the weekly percentage of steers and heifers grading Choice never exceeded 68 percent. One could continue looking backwards and see the percentage continuing to decline.
While the percentage of cattle grading Choice has increased, the percentage of cattle grading Select has decreased. The range in 2018 for the percentage of steers and heifers grading Select ranged from 14.8 to 19.9 percent compared to 16.8 to 22.0 percent in 2016 and 22.7 to 28.9 percent in 2014. Choice has taken some of the Select share but Prime has been the biggest gainer. The weekly percentage of steers and heifers grading Prime in 2018 maxed out at 11.0 percent compared to 6.9 and 5.5 percent in 2016 and 2014 respectively.
OUTLOOK
Based on Tennessee weekly auction market averages, steer prices were $4 to $6 higher than last week while heifer prices were $2 to $6 higher. Similarly, slaughter cow prices were $2 to $3 higher than a week ago while slaughter bull prices were $4 to $5 higher. The extremely cold temperatures continued to keep some producers from moving cattle this week resulting in limited receipts at Tennessee auctions. However, the January price jump that was discussed in last week’s comments became reality this week.
The increase in auction prices this week compared to last week had little to do with stronger feeder cattle futures as futures continue to trade sideways as they have done for three months. The most likely factor that supported prices was stocker producers attempting to get a few spring grass cattle purchased prior to the seasonal price increase.
Moving through February and March, lightweight calf prices are expected to increase on a weekly basis and may reach an apex in Tennessee between $160 and $164 per hundredweight for a 525 pound steer. Thus the anticipated $10 to $14 per hundredweight price increase from this week through the next couple of months could result in stocker producers paying an additional $50 or more per head compared to this week’s prices. The contrary argument to purchasing this early would be the cost of feeding those animals through February. However, cattle producers who planted winter annuals last fall may have inexpensive standing forage ready for harvest which may lend itself to saving a little on the purchase side.
Additionally, winter annual forage production should increase the next several days as daytime temperatures are expected to reach the 60 degree mark while overnight temperatures are expected to be above 50 degrees for three consecutive nights.
Cow-calf producers should consider the expected price increase the next couple of months to determine if selling now or delaying marketings into March would be advantageous.
ASK ANDREW, TN THINK TANK
The annual January 1 Cattle Inventory report is generally available by the end of January, but the partial government shutdown has resulted in the report being delayed until the end of February. This may or may not be a big deal to many readers of this article, but what it does mean is that the market will go another month trading without this vital information.
The USDA has begun rescheduling report release dates and is in the process of backfilling data that was missed during the lapse in funding. The USDA will not be able to backfill all of the data and reports but will do so as data and time permits. Looking forward and barring another shutdown, the impact from missing reports to the overall cattle and beef markets should be minimal. It could have led to increased volatility in the market and could result in correctional moves over the next couple of months if reports do not align with expectations.
Please send questions and comments to [email protected] 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 $125.45 +0.65; April $126.28 -0.03; June $116.15 +0.20; Feeder cattle –March $142.53 -0.03; April $144.00 -0.28; May $144.60 -0.20; August $148.70 -0.23; March corn closed at $3.78 up $0.02 from Thursday.
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