– Dr. Andrew Griffith, Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee
FED CATTLE
Fed cattle traded $2 to $3 lower on a live basis compared to last week with live prices mainly between $182 and $184 while dressed prices were mainly $290 to $291.
The 5-area weighted average prices thru Thursday were $182.69 live, down $2.64 compared to last week and $290.62 dressed, down $2.03 from a week ago. A year ago, prices were $142.82 live and $228.85 dressed.
With the finished cattle market trading around $180, the futures market has the live cattle market moving to the low $190’s in April. This is certainly an attainable price, but it would seem wholesale beef prices would have to push higher for the packer to make any money at that price. Similarly, if live cattle reach that level, one would think that would put a few more dollars on feeder cattle. The one fact about this market is that financial risk is increasing with every passing week. The more dollars tied up per head increases risk. The cattle feeder is taking the most risk in the current transactions, which means they should be hedging a higher percentage of cattle today than they were a year ago. Some of the risk needs to be shifted to speculators.
BEEF CUTOUT
At midday Friday, the Choice cutout was $315.40 up $1.61 from Thursday and down $2.43 from a week ago. The Select cutout was $292.15 up $1.44 from Thursday and down $1.46 from last week. The Choice Select spread was $24.71 compared to $25.68 a week ago.
Retail beef prices have been discussed in this section recently, and those discussions focused on record retail beef prices. That discussion could be extended to price increases in beef-based entrees at restaurants or fast food. However, the focus here is on marketing wholes, halves and quarters to in the local beef business. There are many consumers purchasing a live animal and then having it processed at a local slaughter facility. In today’s market, an 800 pound steer would cost $2,000. If there is an assumption that the animal is carried to 1,300 pounds at a $1 per pound cost of gain then the cattle producer has $2,500 in that animal. Technically, they need to be paid at least $2 per pound on the live weight to turn a mere $100 profit. Most producers are going to want more than a $100 profit for the hassle. If it is assumed the cattle producer sells the animal for $2,800 and the carcass yields 532 pounds of beef then the cost per pound of beef is $5.26 per pound. This cost does not include processing, transportation, or storage. It appears beef is getting expensive!
OUTLOOK
Based on Tennessee weekly auction price averages, steers prices were steady to $5 higher compared to last week while heifer prices were $2 to $5 higher compared to a week ago. Slaughter cow prices were steady to $2 higher than last week’s weighted average price while bull prices were steady to $1 higher compared to the previous week. Cattle markets are hitting the time of year when temperature can drastically impact prices. Hot and humid weather is never kind to cattle, but that is typical of summer. However, as weather patterns shift and overnight lows are in the 50’s and the highs are in the low 90 degree region, there becomes some concern for cattle movement. These shifts from favorable temperatures one week to blistering hot the next compounds the stress that is already present when weaning and shipping cattle. The point is that the market price may have some seesaw type action the next several weeks. As it relates to seasonal tendencies, there is no way of knowing if the seasonal calf price decline will rear its head as the market moves into late September through the end of November. One would think at a minimum that prices will not increase on freshly weaned calves, but crazier things have happened in this cattle market. Shifting to slaughter cow prices, the slaughter cow market has remained strong through the end of August. It is amazing the quantity of cows that continue to make their way to slaughter. This would have to bode well for the bred female market moving forward. There will certainly be producers looking for bred heifers this fall as well as more mature bred females. How high this market can go is unknown, but it should be strong the next couple of years. There remains risk in breeding females as there have not been any great signs of retention at this point. It is likely female movement will begin quickly and run prices higher in a hurry.