Weekly Livestock Comments for July 5, 2019

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

FED CATTLE: Fed cattle traded steady compared to last week on a live basis. Live prices were mainly $108 to $111 while dressed prices were mainly $178 to $182.

The 5-area weighted average prices thru Thursday were $111.17 live, up $0.59 from last week and $180.10 dressed, up $0.74 from a week ago. A year ago prices were $110.00 live and no dressed trade.

Most of the finished cattle trade this week occurred prior to Independence Day which made for a quiet day in feedlot country on Friday. Feedlot managers were likely to be satisfied in that they held the price line with the previous week’s prices, but they were probably still a little disappointed. Cattle continue to be marketed with a positive basis as the early week trade on August live cattle futures was mainly $104 to $105. It would appear that many in the industry are antsy about finding the bottom of this market, because they are ready for a turn to higher prices. However, there is no reason to get excited yet as July and August will be a tough couple of months for live cattle prices.

BEEF CUTOUT: At midday Friday, the Choice cutout was $218.16 down $1.09 from Thursday and down $1.76 from last Friday. The Select cutout was $195.15 down $0.21 from Thursday and down $0.92 from last Friday. The Choice Select spread was $23.01 compared to $23.85 a week ago.

There remains only one more summer grilling holiday weekend for 2019 and that weekend is eight weeks down the road. With the passing of Independence Day, the dog days of summer are sure to set in which means wholesale beef prices will likely struggle the next couple of months. Should this put a damper on cattle prices? The answer is likely a resounding “no” since cattle prices have struggled despite strong retail beef prices which were discussed last week. Maybe the resounding “no” is more optimistic than it should be, but the softer
cattle prices seem to be more a factor of fear due to political tension than the fundamental market. Alternatively, beef packers have found a way to keep wholesale beef prices elevated while paying less for finished cattle. Packers have had strong mar-gins for several months and a typical summer slump in wholesale beef prices will not quickly erase those profits. Those watching the beef market should not be concerned if the market softens the next couple of months as packers will still be in a good situation.

OUTLOOK: Due to Independence Day, no livestock sales were reported in Tennessee this week. This does not mean that the lo-cal sale barn did not host a sale. It simply means that the sales were not reported by Market News. Thus, there is little to discuss with local cash markets. The futures market was open for business every day but July 4th. Feeder cattle futures continue to be somewhat of a mystery as the August con-tract closed at $131.33 per hundredweight on June 25th marking its lowest price level since the contract began trading. Since that low, the August contract has traded back to the upper $130s and appears to be garnering a little support as the summer yearling market rounds into form. The one aspect of feeder cattle futures that participants should keep an eye on is the lack of spread from the August contract through the November contract. The four contracts that are traded for the summer and fall marketing time frame only have a $0.80 per hundredweight spread as of this writing with November leading the way. What does this mean as far as marketing cattle earlier or later? The lack of a price spread means the market is offering an incentive to keep adding weight to cattle if a person can do it fairly inexpensively. Alternatively, if weight cannot be added inexpensively, then the market is not offering much of an incentive. In reality, the feeder cattle market is very stale and can make marketing decisions more difficult than they are naturally. From a stocker operator standpoint, it may be more advantageous to cut one’s losses on the current set of cattle and start a new group. The disadvantage to this way of thought is that feeder cattle futures into spring of 2020 are $2 per hundredweight below the fall 2019 prices. Thus, at this time, it appears nearly every decision results in a negative outcome which means a person has to try to make a decision based on what will hurt the least. It is similar to choosing between having a finger amputated swiftly with a sharp knife or putting a rubber band around it and watching it fall off slowly. No good outcome there.