​Weekly Livestock Comments by Dr. Andrew P. Griffith                                             February 16, 2018


   
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FED CATTLE: Fed cattle traded $4 higher than last week on a live basis. Prices on a live basis were mainly $130 while dressed prices were mainly $205.

The 5-area weighted average prices thru Thursday were $128.29 live, up $1.29 from last week and $202.00 dressed, up $0.67 from a week ago. A year ago prices were $118.97 live and $187.44 dressed.

Live cattle futures led the way this week with more than $3.50 gains from last Friday’s close. Steadily firmer prices throughout the week had packers on the sidelines hoping for a dip in the market. At the same time, cattle feeders stayed patient as prices moved higher on the futures market. The patience paid off for cattle feeders as $4 gains compared to last week continue to result in strongly positive margins. At the same time, the black ink on cattle feeder closeouts has cattle feeders bidding strongly for feeder cattle in the country. The cattle feeders gain has forced packers ask higher wholesale beef prices or experience lower margins. Can fed cattle prices go even higher this spring?

BEEF CUTOUT: At midday Friday, the Choice cutout was $209.20 up $0.16 from Thursday and up $2.70 from last Friday. The Select cutout was $205.16 up $0.02 from Thursday and up $2.13 from last Friday. The Choice Select spread was $4.04 compared to $3.47 a week ago.

Based on calculations performed by the Livestock Marketing Information Center, beef and pork demand in 2017 was comparable to beef demand in 2016. Beef demand since 2014 has been extremely strong relative to the years of the recession. Though beef production is expected to continue increasing in 2018, there is no reason to make the assumption that beef demand will decline. The domestic consumer has continued to demand ground beef products as well as high quality middle meats. Similarly, the export market has continued to demand U.S. beef products which has helped absorb some of the increased production. The ability of packers to push boxed beef prices higher is sometimes a good sign and sometimes a bad sign. How beef products move through the retail market may be a better first indication of demand, but it takes time for prices at the wholesale level to move to the retail sector. As the market moves through the year, domestic beef movement will be important. However, what is happening in other export markets such as Australia may have a larger influence on prices.

OUTLOOK: Feeder cattle futures contracts appear to be following the nearby live cattle contract. The strength in the nearby live cattle contract has pulled feeder cattle futures higher, and it appears to be supporting deferred feeder cattle contracts even though it fundamentally should not support the deferred contracts. The May feeder cattle contract gained $4.53 from last Friday’s close thru Thursday’s close. However, the softening in live cattle Friday morning immediately started pulling the feeder cattle contract lower. This discussion is not meant to bring a positive or negative outlook to the cattle markets or to raise any concern. There has always been volatility and fluctuations in market prices, and they continue in today’s market. However, the finished cattle market is outperforming many people’s expectations right now, resulting in the feeder cattle market outperforming expectations. This has also been evident in the cash feeder cattle market in Tennessee. A handful of truck load lots were marketed this week with a couple of loads of 635 pound steers selling at $157.50 while a load of 840 pound steers hit the $143 mark. These prices put the lighter weight loads at $1,000 per head while the heavier cattle were a touch over $1,200 per head. Something important to note is the relatively strong basis. The load of 840 pound steers sold $5 under the futures market which is a fairly strong basis. This transitions the conversation to Tennessee weekly auction market. Most classes of cattle were steady to $3 higher this week compared to one week ago. The steady to strong market falls in line with the futures market movement this week. There continues to be chatter that feeder cattle prices should decline in 2018 relative to 2017. Lower prices should be the case when only considering stronger beef production. However, there is more to the story than just production. Not knowing the future, cattle prices are very strong and capitalizing on strong prices now would not be a bad thing.

ASK ANDREW, TN THINK TANK: Freight costs play into many aspects of the cattle business. A recent question was concerning freight costs associated with commodity feeds such as corn gluten, soy hulls, and dried distillers. Freight costs are also a big part of getting cattle from the farm to the feedlot. Freight costs can have a regional aspect, but over the road trucking ends up being fairly consistent across haulers. One aspect of livestock hauling is that back hauls are rare. Similarly, back hauls are difficult to find when hauling commodity feeds which impacts freight costs. Through some investigation and visiting with a few folks, freight costs for commodity feeds generally run between $3.50 and $4.50 per loaded mile. There are some instances where costs deviate from this range. Very similar costs are experienced for long livestock hauls. The cost of hauling livestock more than ten hours could soon change with the move to electronic logging devices. Short haul costs will likely differ from long hauls.

Please send questions and comments to agriff14@utk.edu or send a letter to Andrew P. Griffith, University of Tennessee, 314B Morgan Hall, 2621 Morgan Circle, Knoxville, TN 37996.

FRIDAY’S FUTURES MARKET CLOSING PRICES: Friday’s closing prices were as follows: Live/fed cattle –February $130.10 +0.83; April $127.65 +0.40; June $118.68 +0.08; Feeder cattle –March $149.73 -0.10; April $152.40 +0.10; May $152.83 -0.03; August $155.35 -0.00; March corn closed at $3.68 down $0.01 from Thursday.