– Dr. Andrew P. Griffith, University of Tennessee
FED CATTLE: Fed cattle traded $1 higher compared to a week ago on a live basis. Live prices were mainly $116 while dressed trade was not established. The 5-area weighted average prices thru Thursday were $118.00 live, up $3.35 from last week and $184.09 dressed, down $0.74 from a week ago. A year ago prices were $145.22 live and $229.22 dressed. Fed cattle trade was slow coming this week. The futures market bolstered cattle feeders thoughts of higher prices while some evident weakness in the market had packers holding out for lower prices. In the end, it looks like finished cattle are going to show a slight price increase this week, but cattle feeders should not get too excited. It is going to be a tough row to hoe the next several weeks as packers are looking towards the Labor Day market which is still a couple of weeks down the road. Lower beef prices will continue to suppress any positive live cattle price movement. The fall time period could be a tough one, but the eternal optimist says that margins could be better than breakeven.
BEEF CUTOUT: At midday Friday, the Choice cutout was $197.91 down $2.45 from Thursday and down $5.01 from last Friday. The Select cutout was $189.86 up $0.15 from Thursday and down $0.10 from last Friday. The Choice Select spread was $8.05 compared to $10.40 a week ago. There is very little packers can do to turn prices around in the middle of summer without manipulating the market which results in a situation of robbing Peter to pay Paul. However, positive margins keep manipulation at bay as packers continue to manage margins well. The monthly cold storage report was released last week and it indicated that beef in cold storage in June was down 4.9 percent compared to the same month one year ago. Alternatively, beef in cold storage in June was 6.7 percent higher than the five year average and was higher than the previous month. Pork in cold storage is in a similar situation as beef which means total red meat in cold storage for June is below year ago levels but higher than the five year average. Relatively high cold storage quantities provide the marketplace with some usable information. In this case, beef has backed up a little compared to one month ago, but lower prices are clearing more product than last year. The overall red meat situation looks favorable for beef to continue moving off shelves.
OUTLOOK: There was actually some positive movement in feeder cattle future prices this week which was reflected in cash prices on Tennessee auctions. Feeder cattle futures followed live cattle futures forward movement, but feeder cattle prices did not move with the same zest and strength as live cattle futures. It is difficult to prognosticate why feeder cattle prices did not move as strongly as live cattle. However, the relative softness in feeder cattle could be because long hedgers are not confident live cattle prices will continue to strengthen which slows the purchase of feeder cattle. This may be one explanation but doubtful it is a major player in this game right now. As disjoint as cattle futures markets are from fundamentals, the more likely explanation is that traders are speculating on a higher market and thus buying into the game. Until the market gains some consistency with what is happening in the country then the futures market is about as risky as playing croquet in the alligator pit. In relation to local market prices, most weight classes of steers and heifers witnessed price increases this week. There has been lackluster price movement for yearling cattle up to this point, but August is generally a good month to move yearling cattle born in the fall. Maybe the price movement this week is the beginning of the summer market strength. The market will have to wait and see if there is any follow through next week as it relates to this week’s positive price movement. The futures market will take care of itself. However, producers will be able to get a good look at prices as there is going to be a strong run of cattle this week through video sales in the state. It would be advantageous for producers to take note of next week’s load lot prices to help with marketing decisions in the near term. The fall marketing time period continues to look bleak for freshly weaned calves compared to the past couple of years. Producers may want to consider a preconditioning program and adding weight to calves this fall especially if there is a special sale that will be marketing low risk cattle in the near future. August may be the calm before the storm.
ASK ANDREW, TN THINK TANK: On several occasions in the past month, detailed conversations concerning the futures market have crossed my path in one way or another. It is evident that many people feel the futures market is “broke.” In this situation, “broke” means the futures market is not providing hedgers with the risk protection desired and may actually be creating more risk in many producers’ situations. Some of the fundamental problems that have been mentioned include the live cattle contract not being representative of the quality of cattle being marketed since the contract is based on 55% choice, only speculators are attracted to long (buy) positions, and high frequency trading by speculative firms can make it difficult for hedgers to establish a position in the market. None of these problems can be fixed overnight. However, it brings to light that changes may be necessary or hedgers may have to bow out of the market.