Weekly Livestock Comments for November 9, 2018

– Dr. Andrew Griffith, Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee

FED CATTLE: Fed cattle traded $2 lower on a live basis compared to last week. Prices on a live basis were mainly $112 to $114 while dressed prices were mainly $179 to $180.

The 5-area weighted average prices thru Thursday were $112.45 live, down $1.23 from last week and $179.58 dressed, down $0.42 from a week ago. A year ago prices were $123.05 live and $192.06 dressed.

Packers need cattle and feedlot managers need to move cattle, but these needs do not guarantee cattle trade at desired prices for either party. Many cattle feeders were asking as high as $118 through most of the week but settled for lower money as packer bids were lower due to the failure of whole-sale beef prices escalating. The price decline also coincides with live cattle futures losing value. The December live cattle contract traded near $117 most of last week, but it lost big on Monday and spent much of the week between $115 and $116 before surging higher on Thursday. Friday futures trade was not kind to cattle feeders as live cattle prices took another nose dive. It is perceived this weakness will be short lived.

BEEF CUTOUT: At midday Friday, the Choice cutout was $215.99 down $0.08 from Thursday and down $2.77 from last Friday. The Select cutout was $198.83 down $0.28 from Thursday and down $4.83 from last Friday. The Choice Select spread was $17.16 compared to $15.12 a week ago.

Following three weeks of vastly stronger wholesale beef prices, the market reversed course this week with slightly lower prices. Is this price decline marking the slowdown in holiday beef purchasing, or is it just a blip on the radar? Given historical information and the strength in wholesale beef prices the past few weeks, it is likely the Choice cutout has reached its fourth quarter price peak as holiday purchases will persist but will be slowing down. The Choice beef market has been driven by the rib and loin primals with a little bit of help from the brisket which are all common at holiday meals. The next round of support for the beef market will be from the restocking of meat counters following consumer holiday purchasing. However, the restocking of the counter will come in the form of end meats including chucks and rounds. As this shift begins, the Choice Select spread will narrow, and most of the narrowing is likely to come from lower Choice prices rather than a strengthening Select beef market. Change is soon to occur but the beef market is strong.

OUTLOOK: As a market analyst, market watcher, market participant, or simply a bystander, people have the expectation that markets react logically to information. In many cases, markets do react logically, but there are times when it would appear the market is not reacting logically. It is also important to remember that the markets are made up of people, and people do not always respond logically to information. In other cases, it may appear the market is not reacting logically to information, but in actuality it is responding logically based on local and regional conditions compared to the national and international conditions. This statement is made because feeder cattle futures took a tumble this week while some classes of cattle marketed through Tennessee auction markets found support compared to last week. Based on Tennessee weekly auction market averages, steer prices were $2 to $3 higher than last week while heifer prices were $1 to $3 lower. Slaughter cow prices were steady to $1 higher compared to a week ago while slaughter bull prices were $1 to $2 higher. Thus, Tennessee steer prices moved in the opposite direction of the futures market while heifer prices fell in line with losses in the futures market. When only using price data, it is difficult to determine if higher steer prices were logical or not. The higher prices could have been due to higher quality calves and feeder cattle than the previous week, or it could be representative of the local demand for calves to graze the fall forage that has been abundant this year. No matter the reason, cattle producers have little reason to be concerned about calf prices declining much more than where they are now. There is always risk of further price declines in November, but the market has been strong through the summer and fall. Additionally, seasonality will be on the side of calf prices as December and January arrive which means prices should begin to firm following Thanksgiving.