Weekly Livestock Comments for December 21, 2018

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

FED CATTLE: Fed cattle traded $1 higher compared to last week on a live basis. Prices on a live basis were mainly $119 while dressed prices were mainly $189 to $190.

The 5-area weighted average prices thru Thursday were $118.76 live, up $1.76 from last week and $189.96 dressed, up $3.45 from a week ago. A year ago prices were $119.94 live and $190.32 dressed.

Finished cattle prices are trading close to steady with year ago prices and are trading at their highest level since the middle of May. Cash prices have increased about $6 in the last five weeks and are about 11 per-cent higher than their summer low in late August and early September. Much of the price escalation in the past month has been supported by live cattle futures that have increased nearly $6 on the December con-tract since the middle of November. Deferred futures are also providing support looking into the first four months of 2019 before finding seasonal softness heading into the June contract. Today’s market appears to be painting a bright picture for early 2019, but most feedlot managers will be hedging aggressively at these levels.

BEEF CUTOUT: At midday Friday, the Choice cutout was $213.56 up $1.09 from Thursday and up $0.84 from last Friday. The Select cutout was $206.81 up $1.55 from Thursday and up $2.57 from last Friday. The Choice Select spread was $6.75 compared to $8.48 a week ago.

The Choice and Select beef cutouts fol-lowed the seasonal price trend throughout 2018 much more closely than 2017 with less variability than the previous year. The weekly Choice Cutout ranged from just be-low $203 to nearly $232 per hundred-weight with a yearly average that is going to come in around $214. The $29 range in 2018 is miniscule compared to the $62 price range in 2017 where weekly whole-sale Choice cutout prices dipped as low as $189 to as high as $251 and averaged around $210 for the year. Based on the composite beef prices, it would appear the beef market is finding its way to a more stable position as are most sectors of the beef cattle industry. The Choice cutout was able to maintain support above the $200 price mark throughout 2018 in large part due to strong beef exports and in spite of increasing beef supplies. Moving in to 2019, beef prices may struggle to stay above the Mendoza Line (baseball terminology) during times of soft demand and increased supplies. Again, the export market will be a key player in the strength of the Choice cutout.

OUTLOOK: The final calf and feeder cattle auctions of the year were held this week at most weekly auction markets which means the end to the marketing year for most producers. Based on Tennessee weekly auction price averages this week, slaughter cow prices were $1 to $2 higher compared to last week while slaughter bull prices were $3 higher. For steers weighing less than 600 pounds, prices were steady to $4 higher than last week while prices for steers weighing 600 pounds or more were unevenly steady compared to a week ago. Heifer prices this week were steady to $5 higher than prices from the previous week. Auction prices to finish the year were less than stellar, but they are not fully representative of the year in review. Calf and feeder cattle prices in 2018 outperformed most expectations from January through October before displaying weakness the last two months of the year. Alternatively, slaughter cow prices were a sore point most of the year as they failed to meet expectations in the spring and were abysmal the remainder of the year. This brings the conversation to the 2019 market. Cattle prices in 2019 are expected to be similar to prices in 2018 with a few cases of lower prices making an appearance. With a price projection, there is always a caveat or two. Prices are expected to stay close to 2018 prices if domestic and international beef demand remain strong and if no political shakeups hamper the ability to move product. However, those are both big “Ifs.” Whether one thinks the current administration is making good, bad, or indifferent decisions, the administration has shown that they are not afraid of grabbing any bull by the horns. With the prior thought in mind, markets could be swayed in either direction as trade deals are signed or discarded. This means there is more risk in cattle prices moving lower in 2019 than there is of cattle prices moving higher given supply and demand fundamentals. Thus, producers should plan for lower returns the next 12 months.

The December cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of December 1, 2018 totaled 11.74 million head, up 1.9% com-pared to a year ago, with the pre-report estimate average expecting an increase of 1.7%. November placements in feedlots totaled 2.00 million head, down 4.9% from a year ago with the pre-report estimate average expecting placements down 6.4%. November marketing’s totaled 1.87 million head up 1.4% from 2017 with pre-report estimates expecting a 1.0% increase in marketings. Placements on feed by weight: under 800 pounds down 9.3%, 800 to 999 pounds up 16.5%, and 1,000 pounds and over down 12.5%.