By Dr. Andrew Griffith
FED CATTLE: Fed cattle trade was not well established at press. Asking prices on a live basis were mainly $127 to $128 while bids were $120 to $122.
The 5-area weighted average prices thru Thursday were $121.21 live, down $3.75 from last week and $191.75 dressed, down $1.87 from a week ago. A year ago prices were $137.86 live and $220.53 dressed.
There has been movement towards narrowing the basis on finished cattle, but it appears the way packers want to narrow basis is through lower cash prices which would be to their benefit. There were mod-est gains for June live cattle compared to last Friday with the futures price whittling off about $1.50 of the basis. On the cash side, cattle feeder and packers were slow to come to terms on finished cattle prices this week. Packers were trying to purchase cattle $4 to $5 lower than the previous week while cattle feeders were aiming to gain $2 compared to a week ago. Ask and bid prices placed a serious divide between cattle feeders and packers, and this divide may be a common occurrence moving through the summer.
BEEF CUTOUT: At midday Friday, the Choice cutout was $231.07 no change from Thursday and up $3.12 from last Friday. The Select cutout was $209.00 down $0.14 from Thursday and down $0.53 from last Friday. The Choice Select spread was $22.07 compared to $18.42 a week ago.
The heroes in beef cutout prices continue to be the rib and loin primal. There is no doubt consumer demand for middle meats is beginning to hit its stride as spring and summer like temperatures have people on the patio grilling Choice grade beef. The early grilling season is one of the primary reasons the Choice Select spread begins to widen. The second reason for a widening Choice Select spread is a seasonal increase in the number of cattle grading Select. Moving from March into April, the five-year average increase in cattle grading Select was 1.8 percent while the increase from March to May is only 1.3 percent. Based off weekly data, the number of cattle grading Select increased nearly 2.2 percent from March to April which will likely continue widening the spread. It is likely the number of cattle grading Select in the month of May will exceed the five-year average, but a couple more weeks of data are needed. The current Choice Select spread is the widest spread since late June of 2017. However, further widening will be necessary to rival the record spread set last year that exceeds $30.
OUTLOOK: Feeder cattle futures have been like a bobber on a fishing line, up and down. In the past month, the May feeder cattle contract has not seen more than two consecutive days of prices heading in the same direction. In other words, the price of May feeder cattle has not seen three consecutive days of prices going up nor has it seen three consecutive days of prices declining. This type of price action can result in indecision at the farm level if one needs to market cattle or purchase cattle. The price uncertainty in the feeder cattle market continues to stem from the finished cattle market and uncertainties concerning how many head of cattle will be harvested in the next couple of months. The uncertainty also stems from not knowing how many feeder cattle are still on pasture that will fill the pen space once the “glut” of cattle in the feedlot is harvested. The indecision in the futures market spilled over into the local calf and feeder cattle market. Based on Tennessee weekly auction data, prices this week were mainly steady with prices from a week ago. It may be more appropriate to call steers and heifers unevenly steady as some weight classes were $1 higher while others were $1 lower. Steady prices from one week to the next may appear to be a good sign to a person who only checks prices from one week to the next. However, daily price action can provide useful information. In this particular instance, the information garnered from daily price movement is that the broader cattle industry is unsure or where cattle prices should be as they continue to determine supply and demand estimates. This uncertainty is understandable given the USDA-WASDE report released on May 10th. The report noted a 5.4 percent increase in beef production in the second quarter of 2018 compared to last year. A 5.4 percent increase is a far cry from last month’s report which had an expectation of a 10 percent increase. Similarly, projected third quarter production growth was revised from 4.3 to 2.9 percent while fourth quarter growth declined from 5.1 to 4.9 percent.