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Weekly Livestock Comments

Jan 16, 2017
By Dr. Andrew P. Griffith
 
FED CATTLE: Fed cattle trade was not established at press, but the tone was firmer with ask prices in the South at $120 and bids in the $116 to $117 range. The 5-area weighted average prices thru Thursday were $118.44 live, up $0.77 from last week and no dressed trade being reported. A year ago prices were $133.52 live and $209.57 dressed. Cattle feeders were toeing the line this week as packers were trying to buck the uptrend in the futures market. Live cattle futures began the week strong and stayed there most of the week. The futures market price support had cattle feeders asking for $120 or better in the South, but packers were showing little interest as beef cutout prices continued to collapse. The increasing cattle prices and declining beef cutout prices are quickly eroding positive packing margins. However, the cattle feeder is not terribly concerned about packers since packers were rolling in cash while cattle feeders were cutting into equity. The market continues to have upside potential, but large price increases through the spring should not be expected.
 
BEEF CUTOUT: At midday Friday, the Choice cutout was $190.44 up $1.34 from Thursday and down $8.70 from last Friday. The Select cutout was $186.93 up $0.38 from Thursday and down $6.83 from last Friday. The Choice Select spread was $3.51 compared to $5.38 a week ago. Wholesale beef prices have been declining for a few weeks, and it became more of a struggle for wholesale beef prices this week. Tuesday and Wednesday were the toughest of all with price declines of $3.97 and $3.99 respectively. These are not record daily price declines, but price declines this large are few and far between for the beef cutout. Choice beef prices have now dipped back to early December price levels, but the fear is that wholesale prices will continue to decline. It should not just be a fear, because there is still a lot of winter left and Choice beef will struggle to hold its ground. Packers are not only worried about wholesale beef prices going down, but they are also in a situation where finished cattle prices continue to increase. Packers were fortunate to continue experiencing strong positive margins in the fall of 2016 when prices bottomed out for finished cattle, but it appears cattle feeders have regained significant leverage due to their pulling forward of cattle a few months ago. Black ink could turn to red in coming weeks for the packing industry.
 
OUTLOOK: Based on Tennessee weekly auction market data, calf prices found some support this week with $1 to $3 gains on steers and $3 to $5 gains on heifers. It is a little early for the grass fever price support, but warm temperatures across the Southeast may have some producers looking to source calves for spring grazing programs. There are always questions in relation to where prices are headed and how high or how low will they go. Calf prices should improve the next couple of months as lightweight calves come into high demand. Calf prices are likely to increase 3 to 7 percent moving from January to March. The upper side of the price range may be more likely than the lower side at this time, but market conditions can change very quickly. While calf prices were rising this week, feeder cattle prices were unsure of which direction to go. Feeder cattle futures began the week strong but floundered Tuesday thru Thursday before finding a way to build a little momentum on Friday. The uncertainty in the futures market resulted in uncertainty on the cash market. Ultimately, feeder cattle performed admirably on the cash market, but sellers were looking for some strength which would mean feeder cattle are following finished cattle. A market that receives limited discussion is the slaughter cow market, but now is a good time to provide some thoughts. The slaughter cow market was $1 to $2 higher this week compared to a week ago based on Tennessee weekly auction market average prices. This appears to be the beginning of a long methodical period in which slaughter cow prices will increase. Slaughter cow prices generally peak in May or early June due to supply and demand fundamentals. Producers should consider putting wheels under old, open, and poor producing cows. The market price could easily increase 5 to 10 percent the next several months which could add several dollars of value to the animal. It would be prudent for producers to weigh the cow’s cost of production against the potential value of her offspring to help make the sell or retain decision.