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Weekly Livestock Comments

FED CATTLE: Fed cattle trade was not well established as of this writing. Cattle in the North were $3 higher compared to last week on limited trade. Limited live prices were $125 while dressed prices were $205 with asking prices around $207. The 5-area weighted average prices thru Thursday were $126. 13 live down $0.75 from last week and no dressed price was reported. A year ago prices were $121.00 live and no dressed price was reported. Cash cattle trade was slow all week. Some of it may be due to the holiday shortened week, but most of it is likely due to poor packer margins and insipid beef sales. Packers have a long row to hoe with margins nearing -$65 a head according to the Sterling Beef Profit tracker and becoming larger with every additional dollar paid for fed cattle. Feeders are not faring much better with losses just above $42 a head according to Sterling Marketing Inc. High feed cost and reduced consumer interest in beef due to increasing beef prices will squeeze both the feeder and the packer.
BEEF CUTOUT: At midday Friday, the Choice cutout was $194.82 down $0.09 from Thursday and up $1.39 from last Friday. The Select cutout was $182.15 down $1.13 from Thursday and up $1.85 from last Friday. The Choice Select spread was $12.67 compared to $13.12 last week. The Choice cutout has been floundering around the $193 to $195 mark since the beginning of December with no major changes while the select cutout has made major improvements over the same time period. In late November, we witnessed the widest spread since July 2006, but this spread has narrowed by more than $9 since that time. Much of this narrowing is in relation to consumers demand for lower valued beef products. Many consumers differentiation less between a Choice and Select roast than they do between a Choice and Select steak. This means a Choice or Select roast is simply a “roast,” but a Choice steak is a “Choice steak” and a Select steak is a “Select steak.” The Choice Select spread is likely to continue to narrow for a few more weeks and stabilize in March before it starts to widen again in April when summer steak grilling sales take off and provides support for more Choice cuts.
The November Restaurant Performance Index (RPI) improved from October but remained below 100 for the second consecutive month. The index, which tracks the health and outlook of the U.S. restaurant industry, stood at 99.9 in November up 0.5 percent from October.

TENNESSEE AUCTIONS: No weekly markets were reported this week due to the holiday schedule.

OUTLOOK: Christmas and New Year’s holidays have significantly slowed cattle movement in the state and the nation, but movement should start picking up the next few weeks. We witnessed record high prices for most classes of cattle in the first half of 2012 which was supported by a low cattle inventory. However, drought and increased feed cost drove prices south the latter half of the year. The January 1, 2013 inventory report will be released on February 1st. It is likely the report will reveal further decline in inventory which on the supply side would help support cattle prices. Feeder cattle prices normally strengthen through the end of winter and spring, and they should be on the rise this year. However, it is unlikely prices in the first half of the year will be stronger than those witnessed in 2012 during the same time period. Low inventory and “grass fever” will support prices, but high feed costs in the feedlot due to the 2012 drought will result in feeders continuing to bid low for feeder animals entering the feedlot. The high cost of feed will keep feeder cattle prices in check for the next 6 to 8 months. On the flip side, given ideal weather conditions and expected corn and feed grain harvest in 2013, feeder cattle prices are likely to be driven by the low inventory and post year over year increases. It would not be out of the question to see strong third and fourth quarter cattle prices. This is not to say fall feeder cattle prices will be stronger than spring feeder cattle prices, but it is not out of the question either. Cull cow prices will continue to remain strong through 2013 as the quantity of lean beef has been limited since the lean finely textured beef debacle. Cull prices were record high throughout the majority of 2012 and they will continue to be strong through 2013. The timing is unknown and will be driven by consumers, but it is likely 50-50 chemically lean beef use will pick up in the future which could slow the price of cull cows. It will be a slow process and require educating consumers about its usefulness and that it can safely be consumed.

TECHNICALLY SPEAKING: Based on Thursday’s closing prices, February live cattle closed at $133.85. Support is at $133.05, then $131.80. Resistance is at $134.30, then $135.55. The RSI is 58.56. April closed at $137.32. Support is at $136.68, then $135.63. Resistance is at $137.73, then $138.78. The RSI is 57.95. June closed at $132.13. Support is at $131.25, then $130.60. Resistance is at $133.10, then $133.25. The RSI is 53.85. January feeders closed at $152.35. Support is at $151.56, then $150.36. Resistance is at $152.76, then $153.96. The RSI is 58.44. March feeders closed at $154.90. Support is at $154.76, then $154.53. Resistance is at $154.98, then $155.21. The RSI is 59.03. Friday’s closing prices were as follows: Live/fed cattle – February $132.95 -0.90; April $136.78 -0.55; June $131.93 -0.20; Feeder cattle - January $153.18 +0.83; March $156.33 +1.43. April $157.88 +0.70; May $159.55 +0.58; March corn closed at $6.80 down $0.09 from Thursday.

Source:The University of Tennessee