– Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle traded $5 to $7 lower on live basis compared to a week ago. Live prices were mainly $125 while dressed prices ranged from $195 to $198. The 5-area weighted average prices thru Thursday were $124.81 live, down $6.33 from last week and $196.76 dressed, down $7.27 from a week ago. A year ago prices were $158.49 live and $249.71 dressed. Finished cattle prices continue to come under pressure, but cash prices remain at a premium to the June live cattle futures contract. The discount in the futures price has feedlot managers staying current with marketings and moving cattle out more quickly than they did last fall. Moving more cattle has probably contributed to the decline in boxed beef prices as the immediate supply is elevated. However, moving the cattle through the system could support prices this fall as fewer cattle will be available for harvest. However, the futures market for live cattle has less than a $1 spread between the August and December contracts. It is hard to imagine that pricing structure coming to fruition.
BEEF CUTOUT: At midday Friday, the Choice cutout was $222.31 down $0.41 from Thursday and down $2.79 from last Friday. The Select cutout was $201.73 down $1.53 from Thursday and down $7.12 from last Friday. The Choice Select spread was $20.58 compared to $16.25 a week ago. The Choice Select spread has widened nearly $12 in the past three weeks. The widening of the Choice Select spread was expected as the beef market moved into the summer grilling season. The first major grilling holiday weekend starts immediately with the Memorial Day weekend. Many consumers have already made their meat selections and purchases leading up to this weekend but restaurants will be looking to cash in on strong beef items as well. The negative news related to the beef cutout is that the widening of the spread did not occur because Choice meat prices were strengthening, but rather because the Select cutout has weakened significantly. If it was not for the unofficial start to summer, the Choice cutout would have likely faltered more than it has. This does not paint a positive picture heading into the summer as the Choice cutout will likely come under extreme pressure as the summer heat sets in. Beef industry participants will probably be looking forward to all the summer holidays to support prices.
OUTLOOK: How much would someone in the cattle business be willing to pay for a crystal ball revealing cattle prices the next six or seven months? Maybe the real question is who would believe it? The rhyme or reason to calf and feeder cattle price movements seems to be unorthodox to some degree yet very seasonal in other ways. The confusion may actually come from the futures market and the speculators trading in the futures market. Based on local auction market prices through the first five months of the year, calf prices have followed a more exaggerated seasonal pattern. Starting in January, 400 to 500 pound steers had an average price near the $180 per hundredweight mark based on Tennessee auction averages. Lightweight steer prices peaked in the third week of March with an average price of $198. Since the price peak in March, that same weight class of steers has declined $40 per hundredweight which is nearly a 20 percent price decline based on weekly data. Over the past twenty years, monthly Tennessee price data shows that prices for 400 to 500 pound steers has declined from March to May 13 times with an average price decline of 5.5 percent while the price decline from March to May of 2016 is just shy of 15 percent. The price decline that we have seen in two months is even greater than the average price decline from March until October which is 12.4 percent over the past twenty years for the 15 years in which prices were lower in October than March. There is no doubt producers with spring calving herds are concerned about prices this fall. Will prices continue to decline, or will they trade steady or find support between May and October? That is a tough question at this point, but it is hard to imagine further significant declines at this time. On the side of feeder cattle, 700 to 800 pound steers were trading near $147 the first week of January on Tennessee auctions and traded as high as $151 in early spring before falling to $129 in late April. This week, 700 to 800 pound steers traded near $133. The seasonal chart would indicate a strengthening feeder cattle price as the market progresses to August, but futures market participants are not so keen to price in much of a positive price movement at this time.
ASK ANDREW, TN THINK TANK: A producer posed the question this week if this fall would be a good time to purchase stocker cattle. This question requires looking towards fall calf prices and feeder cattle prices the first half of 2017. The investment in calves this fall will be rather small compared to the past three years, but that does not guarantee profitability. However, it reduces financial risk as the investment is smaller. But, to address the question without going through the math, it appears stocker producers should be able to turn a profit on a stocker program if normal production goals related to death loss and cost of gain are met. The cost of gain question is still a question mark considering corn is only boot top to knee high but the current projections should keep feed costs low.