– 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. Prices on a live basis were primarily $119 to $120 while dressed prices were mostly $189 to $191.
The 5-area weighted average prices thru Thursday were $119.64 live, down $0.07 compared to last week and $190.66 dressed, up $0.10 from a week ago. A year ago, prices were $115.65 live and $183.30 dressed.
“This is the song that never ends. It goes on and on my friend.” Maybe the live cattle market is not a song, and maybe we are not friends. But, the live cattle trade at $120 seems to never end. This has been one of the longest periods of steady live cattle trade in memory. The futures market is not pricing in much of a summer price decline, which could mean this market stays range bound for several more weeks and possibly through the summer months. Steady prices are certainly welcome by cattle feeders given that the seasonal tendency is for fed cattle prices to soften during the summer. The problem with lack of price movement is attempting to project for longer periods of time, making the hedging decision a little more difficult.
BEEF CUTOUT: At midday Friday, the Choice cutout was $330.04 up $0.06 from Thursday and up $4.12 from a week ago. The Select cutout was $302.10 down $2.00 from Thursday and down $1.06 from last week. The Choice Select spread was $27.94 compared to $22.76 a week ago.
The Choice boxed beef cutout price has increased about $100 or 43 percent in a 2.5 month period dating back to the middle of March. As beef cutout prices continue to increase, it is useful to evaluate what primal cuts and individual cuts are driving the price surge. With such a large increase, nearly every primal and cut has increased. The largest increase in prices has been from the loin and rib, which is expected this time of year. The rib primal value has increased $156 (41%) since the middle of March while the loin value has increased $170 (53%) over the same time period. The brisket primal value has in-creased $124 (74%) as it is clearly becoming a summer go to item. The chuck, round, short plate and flank have all seen values increase between $56 and $83 over the past 2.5 months. Middle meats are driving prices higher and there are sure to be many steaks on grills this holiday week-end as consumers demonstrate their demand for beef. Strong beef movement at the retail level would cement the idea that consumers are willing to pay up for beef.
OUTLOOK: Based on Tennessee weekly auction market data, steer prices were steady to $4 higher compared to last week while heifer prices were also steady to $4 higher compared to a week ago. Slaughter cow prices were steady to $1 higher while bull prices were $1 to $2 lower compared to the previous week. The calf market will begin to slow moving into the summer months as fewer calves will be available and as demand during the hot and dry summer months tends to fade for these animals. The market for yearling cattle tends to gain momentum heading into the summer months, which is what is being reflected in the summer and fall feeder cattle futures contracts. The question to be answered is if the yearling cash market can meet the current expectations of the futures market. The initial thought is that there is no chance feeder cattle will be $155 or higher in August, but uncertainty remains in both the live cattle market and the feed grain markets. Assuming a cost of gain for cattle entering the feedlot in Au-gust at $1 per pound and being marketed in January at $130 per hundredweight, the breakeven price for the feedlot on purchasing 800 pound steers is around $150 per hundredweight, which is $5 lower than where the August feeder cattle contract currently sits. On top of that, the $1 per pound cost of gain is being generous and assumes corn prices will ease moving into the summer and fall months. There is no way to predict how things will play out, but the market is offering producers another good opportunity to lock in profitable prices for feeder cattle. The market is also offering an opportunity for fall weaned calves, and LRP would be the route to go for smaller producers. Another market that remains strong is the slaughter cow market. Slaughter cow prices generally peak in June, but there are reasons to believe they may hold at these levels deeper into the summer.