Weekly Livestock Comments for February 7, 2020

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

FED CATTLE: Fed cattle traded $1 lower compared to last week. Prices on a live basis were mainly $121 to $122 while dressed prices were mostly $193.

The 5-area weighted average prices thru Thursday were $120.83 live, down $1.24 compared to last week and $192.91 dressed, down $1.56 from a week ago. A year ago, prices were $124.02 live and $198.52 dressed.

Fed cattle trade was slow to develop this week as cattle feeders continue to be pressured by packers to accept lower prices. This is not unprecedented given the current supply of cattle on feed and the seasonal slowdown in beef movement. February is a tough month to push beef given the weather conditions and consumers eating habits. Thus, strong slaughter levels and soft demand have packers unwilling to bid up to secure cattle. This market pattern may persist a few more weeks. Despite a softer live cattle futures market than just a few weeks ago, the expectation remains for finished cattle to reach as high as $130 in the spring months. This seems like a tough feat at this time, but it is possible.

BEEF CUTOUT: At midday Friday, the Choice cutout was $210.61 down $0.32 from Thursday and down $2.73 from last week. The Select cutout was $204.85 down $1.11 from Thursday and down $6.05 from a week ago. The Choice Select spread was $5.76 compared to $2.44 a week ago.

Beef exports in 2019 totaled 3.02 billion pounds which is a 4.4 percent decline from 2018, but it is still the second largest quantity exported in a single year. Japan remains the top destination for U.S. beef with 2019 exports totaling 796.7 million pounds. This total represents a 10.0 percent decline compared to the previous year, but that decline was largely related to the higher tariff rate U.S. beef exporters faced compared to the tariff rate other exporters faced. The tide should turn back in the favor of U.S. beef exports going to Japan now that the U.S. is on a level playing field as it relates to tariffs. South Korea was the second largest destination for beef totaling 683.3 billion pounds which was an increase of 7.1 percent compared to the previous year. The South Korean market has grown tremendously the past two years following the signing of a trade agreement that reduced tariff rates. Mexico, Canada, and Hong Kong round out the top five destinations for U.S. beef exports and all were lower than the previous year. New trade agreements should spur exports in 2020.

OUTLOOK: Based on Tennessee weekly auction market price averages, steer prices were steady to $3 lower than last week while heifer prices were unevenly steady compared to a week ago. Slaughter cow prices and slaughter bull prices were mostly steady compared to the previous week. This week’s softer price trends and a struggling feeder cattle and live cattle futures market could be cause for concern for cow-calf operations and stocker operations. There is no good reason for the market to be experiencing this weakness from a fundamental stand-point. There have not been any real surprises in market information as it relates to cattle supply and expected beef production nor has there been any negative information on the demand side. Despite no major changes to supply and demand, the market has softened. There are sure to be people blaming the failure of trade deals to result in realized trade, but trade is a long game. It is rare for a trade deal to result in immediate changes when trade was not well established before-hand. Others are likely to blame coronavirus or the acquittal of President Trump on impeachment charges. What one realizes after actively participating in this market for several years is that any piece of information can be used to send markets one way or the other. Once this is realized, one has to make the decision to take advantage of the opportunities the market offers when it offers them. This sudden price downtrend will most likely look like a blip on the radar in a few months, but that blip will mean some producers receive lower prices for the product they are selling. It is unlikely for this market to make any type of tremendous price run in the next four to six months given the strong cattle on feed numbers and a fairly stout calf crop from 2019. The price improvement that most will witness will be in the back half of the year and most may be in the last four months of the year.