Weekly Livestock Comments for February 15, 2019

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

FED CATTLE: Fed cattle trade was not well established at press. Asking prices were $126 to $127 on a live basis while bid prices were mainly $122.

The 5-area weighted average prices thru Thursday were $124.74 live, up $0.72 from last week and $199.20 dressed, up $0.68 from a week ago. A year ago prices were $128.29 live and $202.00 dressed.

Finished cattle trade has been following a similar pattern the past several weeks. That pattern is to delay trade until as late as possible in the week and then price cattle in the narrow trading range that has been consistent the past several weeks. Current finished cattle prices are neither favoring the direction of packers or feedlots which means both parties can be content or they are both dissatisfied because they want a larger share of the margin. It would seem that upside potential in the finished cattle market is still possible moving through the next eight to ten weeks, but nothing is guaranteed. If boxed beef prices gain momentum then finished cattle prices are likely to do the same.

BEEF CUTOUT: At midday Friday, the Choice cutout was $216.94 up $0.87 from Thursday and up $1.23 from last Friday. The Select cutout was $211.04 up $1.09 from Thursday and up $0.46 from last Friday. The Choice Select spread was $5.44 compared to $4.67 a week ago.

The Choice cutout price has been support-ed through the first month and a half of 2019 because middle meat (steak) demand has remained relatively strong compared to end meats or roast type cuts. The winter months are when end meats experience their strongest demand and few consumers place much price differential between quality grades of end meats. This is why the Choice Select spread tends to narrow during the winter months.

The beef cutout value for a quality grade is a weighted average composite price calculated using prices of individual cuts that come from the seven primal cuts in a beef carcass. The seven primal cuts composing a beef carcass include the chuck, brisket, plate, flank, round, rib and loin. When com-paring primal cut prices across different quality grades (Prime, Branded, Choice, and Select), there is very little difference in prices for rounds, plates, and flanks while mod-est price differences exist for chucks and briskets. Alternatively, significant price differences exist across quality grade for loins and ribs which is where higher quality is demanded.

OUTLOOK: Based on Tennessee weekly auction market averages, steer and heifer prices were unevenly steady compared to last week while slaughter cow prices were $1 to $2 higher and slaughter bull prices were $2 higher. The big story in cattle markets the past few weeks has been the in-crease in slaughter cow prices. Cow-calf producers have been concerned about low slaughter cow prices since the middle of October when prices in Tennessee dipped into the mid $40s and proceeded to the low $40 level for November and December. In the past four weeks, Tennessee slaughter cow prices have increased $10 per hundredweight and are now at their highest level since the first week of August. The $10 per hundredweight price increase the past month is essentially $120 to $140 more per head. The seasonal tendency would say there is still room for slaughter cow prices to increase which means they could reach $60 per hundredweight, resulting in $60 to $70 more per head than the current week’s value. Producers should not concern them-selves with hitting the top of the market but rather take advantage of what is expected to be a favorable marketing window for slaughter cows the next three to four months. Similar to slaughter cows, the lightweight calf market has started to strengthen. With the expectation of bountiful forage in the spring due to favorable moisture levels, stocker producers are providing support to the calf market and this is expected to continue through late March and early April. Though calf prices have been strong, the feeder cattle market is severely undervalued compared to other classes of cattle. The reasoning for seemingly undervalued feeder cattle may be due to muddy pens and unfavorable feeding conditions, but it is also likely linked to cattle feeders lack of confidence that the finished cattle market will remain strong through the second and third quarters of 2019.