– Dr. Andrew Griffith, Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee
FED CATTLE: Fed cattle traded steady com-pared to last week on a live basis. Prices on a live basis were mainly $110 to $111 while prices on a dressed basis were mainly $173 to $174.
The 5-area weighted average prices thru Thursday were $110.63 live, up $0.07 from last week and $173.76 dressed, down $1.06 from a week ago. A year ago prices were $111.05 live and $174.96 dressed.
Finished cattle continued trading steady for the fifth consecutive week. Early in this trend, one might say this was beneficial for cattle feeders as they were able to hold packers at bay and keep prices from falling. However, some concern may be creeping in from the cattle feeding side as cattle feeders should be seasonally gaining some leverage on packers. Generally speaking, the price moves in the direction favorable to the one who holds the leverage. The steady prices again this week may mean cattle feeders are not gaining leverage as would be expected. There is no reason to abandon ship at this juncture, but if prices continue to be steady or decline in the next few weeks then there will be considerable discussion points.
BEEF CUTOUT: At midday Friday, the Choice cutout was $202.89 up $0.38 from Thurs-day and down $0.78 from last Friday. The Select cutout was $193.18 up $0.69 from Thursday and up $1.21 from last Friday. The Choice Select spread was $9.71 compared to $11.70 a week ago.
The August Restaurant Performance Index (RPI) was released at the end of September. This index is a monthly index that attempts to track the health and outlook of the U.S. restaurant industry. The RPI in August was 102.0 which is an increase of nearly 1 per-cent from the previous month. This would indicate a positive movement in the industry given that any value greater than 100 indicates a period of expansion. The RPI is not necessarily the most robust value to consider when thinking about beef prices alone, but what it does do extremely well is provides an idea of how consumers are spending some of their discretionary in-come. When consumers are consuming more meals away from home then it is expected that there is an increase in discretionary spending and some of that is filtering into the beef industry. Despite this one index not providing a complete picture of the beef industry, it would appear the in-formation in it supports the strength in the beef market. Demand is strong, and consumers with more income purchase beef.
OUTLOOK: Fall temperatures arrived this week in the Southeastern United States as well as some rain that was tremendously beneficial for some areas and could have been devastating for others. Trying to look at the positive aspect of the overall weather conditions, adequate fall moisture and favorable temperatures should support significant fall forage production. This for-age can result in grazing the cow herd later before feeding harvested feeds or potentially providing a nice forage base for weaning and backgrounding freshly weaned calves. As expected, lightweight calf prices are slowly declining as the market moves through the month of October. However, prices are not declining as rapidly as is the seasonal tendency. If prices were declining to a great extent then that would provide more reason to wean and precondition calves this fall and winter, but the decision is made more difficult with relatively strong calf prices. The expectation of relatively inexpensive forage makes the decision more difficult. Understanding that cost of gain is highly variable across producers and production systems then it is difficult to discuss it thoroughly. However, most producers using grass will have a cost of gain between $0.40 and $0.60 per pound of gain. Value of gain is not an exact science, but it is a little easier. The current value of gain for adding 100 pounds of weight to steers starting from 475 pounds to 625 pounds ranges from $1.02 to $1.24 per pound of gain if prices are locked in today and no value added premium added. Similarly, adding 150 pounds of weight to steers of the same weight categories has a value of gain ranging from $1.04 to $1.15 per pound of gain with no price premium and prices locked. Feasibly, weaning and vaccinating and putting a group of calves together should garner a price premium which is not added in the value of gain calculation. Additionally, the value of gain is not guaranteed unless some form of price protection is utilized. This is a tough decision for many producers, but pencil and paper can go a long way in helping.