– Dr. Andrew Griffith, Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee
FED CATTLE
Fed cattle traded $3 lower on a live basis compared to last week with prices in the South mainly between $178 and $180 while prices in the North were mainly $293 to $295.
The 5-area weighted average prices thru Thursday were $185.14 live, down $3.27 compared to last week and $294.12 dressed, down $2.94 from a week ago. A year ago, prices were $146.76 live and $234.03 dressed.
As cattle market participants continue to prepare to compete for fewer animals to place on feed and then on the rail, they appear to be like Mike Tyson fighting Evander Holyfield. They are all looking for an opportunity to throw a good punch, but biting the ear of the other is acceptable if there is a chance it will throw the other entity off its game. Cattle feeders accepted lower prices for cattle coming off feed this week. At the same time, they will likely have a desire to pay less for feeder cattle. The balancing act is going to be a tough one since making money hinges on feeding cattle. However, if feeding cattle results in large losses, cattle feeders may reevaluate their plan moving forward.
BEEF CUTOUT
At midday Friday, the Choice cutout was $315.70 up $1.56 from Thursday and up $13.06 from a week ago. The Select cutout was $287.75 up $1.49 from Thursday and up $10.55 from last week. The Choice Select spread was $27.95 compared to $25.44 a week ago.
The retail price of Choice beef for July was just shy of $8.31 per pound. This price is $0.17 per pound higher than June and $0.69 per pound higher than July 2022. Similarly, the all fresh beef retail price for July was $7.79 per pound, which was $0.22 per pound higher than June and $0.45 per pound higher than July one year ago. These are both records for retail beef prices in their respective categories. These values may or may not make much sense to the average reader so here is something a little more concrete. The all uncooked ground beef retail price for July was $5.54 per pound. Thinking from the standpoint of eating a quarter pound hamburger, the meat alone cost a person $1.38. This does not include the bun, condiments, French fries, or a drink. The current retail price of uncooked ground beef has increased 49.5 percent since I started serving cattle producers in 2012. However, the price of a Big Mac has only increased 23 percent over the same time period. Thinking another way, it would cost a person $506 per year for ground beef if they ate a quarter pound hamburger every day.
OUTLOOK
Based on Tennessee weekly auction price averages, steers prices were steady to $3 lower compared to last week while heifer prices were unevenly steady compared to a week ago. Slaughter cow prices were steady to $2 lower than last week’s weighted average price while bull prices were steady compared to the previous week. This is the first week in many weeks where lower prices have been discussed. Feeder cattle futures contract prices have softened all week, which may be the leader for lower cash prices in local auctions. Despite feeder cattle futures prices softening, they continue to trade in the same $10 per hundredweight range they have been in since the end of June. The question now is if the market will trade lower than the established range or does it have the ability to make a run to even higher prices. There is no way of knowing the answer, but the market sure seems to be finding little to no support for higher prices at this time. This would mean it is more likely for feeder cattle to stay in its current trading range or to soften. There are certainly fundamental reasons in the market for feeder cattle prices to be strong, but it is also a possibility prices exceeded the level fundamental factors can support. A good example of this was in 2014 and 2015 when prices ascended rapidly and then descended rapidly through 2016 and 2017. This commentary is not saying cattle prices should be higher, lower, or exactly where they are, but it is saying the market is expected to be efficient. This simply means the market will adjust such that price is in line with supply and demand. Given that no one knows what prices will do with 100 percent certainty, it could be beneficial for some producers to establish a price floor on some or all of the cattle owned. The idea of spending money to protect a price is not always accepted as a necessary production or marketing cost, but the price will be paid when prices begin declining.
The August cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of August 1, 2023 totaled 11.03 million head, down 2.3% compared to a year ago, with the pre-report estimate average expecting a 1.6% decline. July placements in feedlots totaled 1.62 million head, down 8.3% from a year ago with the pre-report estimate average expecting placements down 5.5%. July marketing’s totaled 1.73 million head down 5.3% from 2022 with pre-report estimates expecting a 5.2% decrease in marketings. Placements on feed by weight: under 700 pounds down 9.6%, 700 to 899 pounds down 8.7%, 900 pounds and over down 3.7%.