– Dr. Andrew Griffith, Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee
FED CATTLE: Fed cattle traded steady to $1 lower compared to last week on a live basis. Prices on a live basis were primarily $120 to $122 while dressed prices were mostly $191 to $193.
The 5-area weighted average prices thru Thursday were $121.36 live, down $0.57 compared to last week and $192.11 dressed, down $3.52 from a week ago. A year ago, prices were $96.95 live and $154.27 dressed.
Precipitous is the word that comes to mind as it relates to finished cattle markets and live cattle futures contracts, because that is the type of price decline that has taken place this week. Seasonal beef demand is strengthening, which is sending beef prices higher, but cattle feeders are watching fed cattle prices decline as packers have an ample supply of cattle to hang on the rail. This is one challenge that must be navigated with a non-storable product such as cattle. The primary method the beef industry navigates this situation is by keeping cattle on grass longer. However, cattle cannot be kept indefinitely. The supply of market ready cattle will likely have to wane before cattle feeders gain much leverage.
BEEF CUTOUT: At midday Friday, the Choice cutout was $283.32 up $1.01 from Thursday and up $6.38 from a week ago. The Select cutout was $272.41 down $1.28 from Thursday and up $3.28 from last week. The Choice Select spread was $10.91 compared to $7.81 a week ago.
Total beef production year-to-date is about 8 billion pounds, which is nearly a 3.6 percent increase in production year-over-year and a 6.9 percent increase over 2019. Similarly, exports of beef muscle cuts year-to-date are approximately 4.1 percent greater than the same period last year. It has been clear that domestic production of beef has been strong as has been domestic and international demand for U.S. beef throughout the pandemic. The question to answer now is how demand for beef will change as the economy and consumers attempt to transition back to lifestyles prior to the pandemic. Many consumers have not been able to travel, which means a large portion of their disposable income could be shifted to eating experiences. However, as consumers begin to travel more and restaurants open to larger capacities, it is not known how disposable income expenditures will shift. It is likely domestic demand may soften as disposable income shifts, but international demand may pick up the slack as exports remain strong and more strength is evident in China.
OUTLOOK: Based on Tennessee weekly auction market data, steer prices were $3 to $6 lower compared to last week while heifer prices were steady to $3 lower com-pared to a week ago. Slaughter cow prices were $2 to $3 lower while bull prices were $2 to $5 lower compared to the previous week. Whiplash is a serious condition in the cattle markets this week as prices for all classes of cattle were thrown into reverse while the vehicle was still moving forward. There is no doubt that many in the industry thought feeder cattle had been overvalued in the futures market based on expected feed prices and live cattle prices. However, it took corn prices making another run this week for feeder cattle futures to tumble. Corn prices have increased $1 per bushel in less than three weeks with more than half of that increase occurring this week. The quick rise in corn prices resulted in the April feeder cattle contract price decreasing more than $12 per hundredweight the past two weeks while the August contract has declined similarly. There is no way to know if the market will recover or how much it will recover if it does. Traders tend to overreact in one direction and then the other, which may be the case in today’s market. However, that means nothing to the cattle producer who needs to market cattle in the near term other than it influences the price received. How can a person stress enough the importance of managing price risk? One can hope the market rebounds over the next few days and weeks, but the likelihood of the market moving back to previous highs is slim. For a significant re-bound, feed prices will have to decline considerably while demand for finished cattle and beef will have to increase. The market has shown its ability to be frustrating the past several weeks, but it offered sellers a long window of marketing opportunity. The market is now going to offer buyers an opportunity to secure inventory at a lower price.
The April cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of April 1, 2021 totaled 11.90 million head, up 5.3% compared to a year ago, with the pre-report estimate average expecting an increase of 6.1%. March placements in feedlots totaled 2.00 million head, up 28.3% from a year ago with the pre-report estimate average expecting placements up 33.8%. March marketing’s totaled 2.04 million head up 1.5% from 2020 with pre-report estimates expecting a 1.1% increase in marketings. Placements on feed by weight: under 700 pounds up 37.7%, 700 to 899 pounds up 27.1%, 900 pounds and over up 9.3%.