– Dr. Andrew Griffith, Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee
FED CATTLE: Fed cattle traded $3 to $4 lower compared to last week. Prices on a live basis were mainly $109 to $110 while dressed prices were mostly $173 to $175.
The 5-area weighted average prices thru Thursday were $109.35 live, down $3.96 compared to last week and $174.20 dressed, down $6.85 from a week ago. A year ago, prices were $126.98 live and $204.03 dressed.
Most markets in the cattle and beef complex are moving contra-seasonally due to world heath issues and the economic slow-down that comes with it. When relief finally comes is anyone’s guess, but there should be just as strong of profits on the other side of this market as there are losses in the current environment. This appears to be the opposite scenario compared to what happened to markets from 2014 through 2016. The current situation is not expected to play out over three long years, but the market is expected to rebound at some point in the near future and provide big profits for cattle feeders who make feeder cattle purchases at these low prices. It is beginning to look like several feeder cattle producers are going to own cattle in the feedlot.
BEEF CUTOUT: At midday Friday, the Choice cutout was $206.85 up $0.84 from Thursday and down $0.72 from last week. The Select cutout was $203.29 up $4.23 from Thursday and down $1.18 from a week ago. The Choice Select spread was $4.74 compared to $4.28 a week ago.
The question as it relates to beef is where will it be consumed if it is consumed at all? As more and more events are canceled, suspended, or postponed, fewer patrons will be making their way to restaurants and eating meals away from home. This includes baseball stadiums where hamburgers and hotdogs are the center of most participants meals while many other events involve restaurant and hotel meals that often include beef items. As consumer movement declines, there will likely be more meals consumed at home. Will these meals include beef as the main course or will consumers move to other meats such as poultry and pork? Regardless of what meats are consumed at home, record meat production is expected in the United States this year, and clearing the market will take increased consumption domestically and moving meat overseas. This is a tough pill to swallow as we head towards the beginning of grilling season, but the current situation is setting the market up for another drastic price escalation at some point.
OUTLOOK: Based on Tennessee weekly auction market price averages, steer and heifer prices were $4 to $6 lower compared to last week while slaughter cow and bull prices were $2 to $3 lower compared to the previous week. Cash markets and futures market prices have been in a free fall as coronavirus reaches every aspect of the economy. Government entities and private industry participants have made several decisions that will limit movement of people and gatherings of people which will reduce commerce and trade. The expectation of reduced commerce and consumption of goods has equity and commodity markets reeling and essentially in a free fall. As an example, the August feeder cattle futures contract price has declined $30 per hundredweight over the past three weeks and $36 in two months. From a cash market standpoint, 550 pound steers in Tennessee have lost $6 per hundredweight the past three weeks which makes it look like the calf market has not come under as much pressure as the feeder cattle market. However, one should consider that calf prices are generally on the uptrend this time of year and escalating in a hurry. Thus, lightweight calf prices are taking a similar hit as the feeder cattle market. The calf market is easily $10 to $12 per hundred-weight lower than where it was expected to be this time a couple of months ago. The question on every market participants mind is when the for-tunes of the market will turn in favor of increasing prices. The answer is that it may take a while for the coronavirus scare to subside which means it may take a while for the market to re-turn to normalcy. It is difficult to encourage anyone to market calves or feeder cattle in this market. The first thought on a course of action is to carry cattle longer which gives the market time to recover from the initial hit. However, if the market does not turn in favor of holding the cattle then even more dollars will have been lost by carrying cattle longer.