Weekly Livestock Comments For December 23, 2016

By Dr. Andrew Griffith,
Assistant Professor

FED CATTLE: Fed cattle traded $3 to $4 higher on a live basis compared to last week. Prices on a live basis were mainly $115 to $116 while dressed prices were mainly $180. The 5-area weighted average prices thru Thursday were $115.14 live, up $4.91 from last week and $179.79 dressed, up $9.48 from a week ago. A year ago prices were $123.50 live and $199.60 dressed. Christmas came early for cattle feeders as red ink has turned to black ink the past month. Cattle feeders have been in the money since late November and the positive price movement this week makes closeouts look even better. Feedlot managers will look to maintain this momentum next week and into the new year, but maintaining positive price movements may be difficult as winter sets in. The winter market is always hard to predict as retailers shift the focus from middle meats to end meats. On the cattle feeder side, cold wet weather is tough on cattle feed efficiency and will result in higher costs. It is better for it to get cold and stay cold or not get cold at all. Cattle will be looking for a dry spot in the pen.

BEEF CUTOUT: At midday Friday, the Choice cutout was $199.01 up $1.40 from Thursday and up $4.24 from last Friday. The Select cutout was $187.07 up $0.90 from Thursday and up $6.37 from last Friday. The Choice Select spread was $11.94 compared to $14.07 a week ago. Wholesale beef prices have made a run the past few weeks as the Choice cutout has gained $8.76 while the Select cutout has gained $15.22 over the same time period. It is common for beef prices to strengthen during the holiday season as consumers are cooking high quality middle meats. At the same time, retailers are stocking up on end meats as consumer preference will shift to slow cooking type beef products. The shift of retailer focus to end meats is evident in the narrowing of the Choice Select spread. The spread has narrowed more than $6 in three weeks, and it will continue to narrow through February. The spread narrows during the winter because it is difficult to tell the difference between a Choice or Select grade roast that has been slow cooked. Thus, the demand for Select grade meat picks up, because it is a less expensive product. The spread will begin widening again as soon as warmer weather arrives and consumers begin grilling again. It may be difficult for beef prices to push forward much more the next few weeks.

OUTLOOK: There is little to discuss in terms of price trends compared to a week ago, because a limited number of markets were reported this week. Market News will not be reporting livestock auctions between Christmas and New Year’s either. Based on the six Tennessee auction markets reported, there was a firmer tone in slaughter cow, slaughter bull, and steer prices. Lightweight heifer prices were firmer while heavier heifers lost a couple of dollars. Being that auction data in the state is limited, now is a good time to look at what the futures market has done the past several months. It may also be a good time to start considering the spring marketing plan. Using the January 2017 contract for feeder cattle, it is easy to see that the market has had a peak and a valley and is now on the upswing. January feeder cattle futures were trading just shy of the $140 mark in early August. The market then spent ten weeks moving lower where it reached a low just under $111. In a matter of ten weeks, the market lost $29 per hundredweight which had cow-calf producers questioning if there was any way to make a living with cattle. Since the middle of October, the January contract has moved north of $130 in about a nine week span. Drastic price swings have been in the market place for more than three years now, but three years of studying the chaos provides very little insight as traders continue to dominate the market. The key for producers is to manage costs. There are no guarantees in the cattle business, but it is almost a guarantee that the average calf and feeder cattle prices will be lower in 2017 than in 2016. It is unlikely the market will make some extremely strong run in 2017. Similarly, one would think it would be difficult for cattle prices to press much lower than this fall. If history is an indicator, the market will continue to be in flux next year, but the price swings should not be as exaggerated as they have been in 2016. Producers are encouraged to look for pricing opportunities for 2017 marketing. The futures market and LRP insurance appeared to be a poor excuse for price risk management, but there is no doubt producers now wished they had used it for fall feeder cattle marketing.

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, 2016 totaled 10.65 million head, down 1.4% from a year ago, with the pre-report estimate average expecting a decrease of 1.4%. November placements in feedlots totaled 1.84 million head, up 15.0% from a year ago with the pre-report estimate average expecting placements up 13.3%. November marketing’s totaled 1.79 million head up 16.6% from 2015 which corresponds closely with pre-report estimates. Placements on feed by weight: under 600 pounds no change, 600 to 799 pounds up 31.3%, and 800 pounds and over up 5.3%.

Source: osu.edu