Weekly Livestock Comments for December 23, 2021

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

FED CATTLE: Fed cattle traded $1 to $2 lower compared to last week on a live basis. Prices on a live basis primarily ranged from $135 to $137 while dressed prices were mainly $217 to $219.

The 5-area weighted average prices thru Wednesday were $135.55 live, down $1.62 compared to last week and $217.30 dressed, down $1.06 from a week ago. A year ago, prices were $109.03 live and $171.67 dressed.

Fed cattle prices made a good run to finish the fall months, but they have softened as the market has reached the end of the year. This is not unexpected as most packers will reduce slaughter days by 1 to 1.5 days each of the next two weeks. Simply stated, this meant there were plenty of slaughter ready cattle to meet the needs of reduced slaughter weeks. As slaughter levels ramp back to typical levels in January, finished cattle prices will be supported moving into March and April. The January and February market may continue to be sluggish relative to the late fall heroics, but prices should stay above $130 and push back to the $140 mark as demand seasonally strengthens in the spring and summer.

BEEF CUTOUT: At midday Thursday, the Choice cutout was $263.07 up $1.21 from Wednesday and down $0.38 from a week ago. The Select cut-out was $252.89 up $2.06 from Wednesday and up $4.31 from last week. The Choice Select spread was $10.18 compared to $14.87 a week ago.

Beef prices may be finding support at current price levels, which would sup-
port a thought shared in this column several months ago. The thought was that $250 appeared to be a strong support point for wholesale Choice beef prices, and that assertion appears to be holding at this juncture. Even Select beef prices have only had a short time below the $250 price point. Consumers have proven they have a strong demand for beef as beef items continue to fly off the meat counter despite high retail prices. The market is seeing the Choice Select spread narrow as winter begins to set in. The spread is likely to continue narrowing the next six to eight weeks as consumers will be focused on end meats and slow cooker preparation of beef. The expectation moving into the spring and summer is for wholesale prices to push higher, which means retailers will be forced to keep the retail price of beef elevated. There has been considerable conversation concerning consumers’ willingness to pay for beef, but there is no reason to suspect consumers will stop buying at this time.

OUTLOOK: Most weekly auction markets were closed this week leading up to Christmas and those that did hold a sale were not reported. Similarly, most markets will be closed next week, which is bookended by Christmas and the New Year holiday. Despite most livestock auction markets being closed, futures traders have continued trading feeder cattle and live cattle on the Chicago Mercantile Exchange. January feeder cattle started the week trading at its lowest price in over a month be-fore finding support and rallying a few dollars higher. The same trend holds for most all of the feeder cattle contracts.

It is difficult to say for sure what has been pressuring feeder cattle futures, but the most logical reason would be the strengthening corn market. Corn futures have gained approximately 35 cents over the past three weeks, which is sure to be weighing on feeder cattle. However, it is unlikely corn prices can weigh too heavily on feeder cattle as the supply of feeder cattle for the next year is essentially set at this point, and competition for those cattle will be fierce. There are no expectations for feeder cattle supplies to increase as cow herd expansion will be difficult given increasing input prices including fertilizer, fuel, feed, and chemicals. Some producers may even be forced to reduce herd sizes further as they attempt to maintain positive cash flow. The outlook moving into 2022 is for cattle prices to grind higher with seasonal trends in place for most weight classes of cattle. This seems like a bold prediction considering some of the price swings the cattle markets have experienced the past several years. However, the prediction does not seem as bold considering the quantity of support that should be provided by the reduced supply of feeder cattle. Producers should be evaluating price risk management strategies for 2022 in order to determine if profits can be achieved given the current expectations in the market.

The December cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of December 1, 2021 totaled 11.99 million head, down 0.4% compared to a year ago, with the pre-report estimate average expecting a decrease of 0.2%. November placements in feedlots totaled 1.90 million head, up 3.6% from a year ago with the pre-report estimate aver-age expecting placements up 3.8%. November marketing’s totaled 1.87 million head up 5.3% from 2020 with pre-report estimates expecting a 4.5% decrease in marketings. Placements on feed by weight: under 700 pounds up 7.1%, 700 to 899 pounds up 0.3%, 900 pounds and over no change.

EDITOR’s NOTE: Join us on January 24 when Dr. Griffith leads off the first session of the 2022 OSU Virtual Beef School.