By Dr. Andrew P. Griffith
FED CATTLE: Fed cattle traded $5 lower compared to last week on a live basis. Live prices were mainly $105 to $106 while dressed prices were mainly from $170 to $172.
The 5-area weighted average prices thru Thursday were $105.40 live, down $8.71 from last week and $170.46 dressed, down $12.11 from a week ago. A year ago prices were $109.52 live and $173.16 dressed.
The futures market price plummet has been the focus all week. Following the fire at Tyson’s Holcomb facility in Finney County Kansas on August 9th, live cattle futures dropped the limit on Monday and Tuesday before stabilizing mid-week. Despite the stabilization, prices did not recover moving through the end of the week. This resulted in the October contract trading below $100. Cash prices followed the futures market with the bottom falling out which sent cattle feeders reeling. The last time the weekly weighted average finished cattle price fell below $100 was December 2010 while the $100 mark was only achieved in 12 weeks from 2000 through 2010. Could the cash market fall below the century mark? It is possible but unlikely.
BEEF CUTOUT: At midday Friday, the Choice cutout was $237.85 up $1.73 from Thursday and up $21.10 from last Friday. The Select cutout was $212.67 up $2.00 from Thursday and up $19.76 from last Friday. The Choice Select spread was $25.18 compared to $23.84 a week ago.
The winners in the Tyson Holcomb plant fire are the packers which coincidently includes Tyson. As soon as the news of the fire broke, cattle prices deflated and boxed beef prices escalated. This sent packer margins soaring over their already extremely strong margins. The “concern” across the industry is the quantity of packing capacity and being able to absorb the cattle that would have been processed at the facility impacted by the fire. On the other end, the “concern” is meeting consumer demand for beef which was a moon shot for boxed beef prices. With the limited amount of information from Tyson on the fire and most other information being grossly negative, it is difficult to really know how much impact the fire had on the facility. Some would say this is an all or nothing situation but that seems unlikely. Could the facility be back to 30, 40, or 50 percent capacity in two to three weeks? It is hard to answer that question from the outside, but there is an economic driver for Tyson to not share such information in that they and other packers can make a lot of money in the near term.
OUTLOOK: Based on Tennessee weekly auction market averages, steer and heifer prices were $4 to $8 lower compared to last week with instances of steer prices being sharply lower. Slaughter cow prices were $2 to $5 lower compared to last week while bull prices were $3 to $5 lower compared to a week ago. This market was also greatly influenced by the Tyson slaughter facility fire in Kansas. All feeder cattle futures contracts were down the limit on Monday and most pushed close to or met the limit move down on Tuesday before rebounding late in the week. What makes this price movement even more surprising is the fact that December corn futures declined nearly 50 cents per bushel due to a bearish crop production report that was released on Monday. The lower corn prices did not appear to do anything to feeder cattle prices to offset the feeder cattle price slide due to the Tyson fire. It is very unfortunate for those who made the decision to market feeder calves and yearling cattle this week. It was definitely a week that could have put a producer’s bottom line deep in the red if he or she did not have some sort of price protection. Taking a look at the value of 525 pound steers, heifers, and bull calves on the Tennessee weekly auction summary, steers averaged $706 per head this week while heifers and bulls averaged $626 and $660 per head respectively. This would appear to be at a level in which very few people can actually make a profit. This market is likely to rebound following the knee jerk reaction. The primary rebound will be in the yearling cattle arena which is where cattle feeders will continue to search for cattle to fill pen space. The calf market may see a short lived rebound, but the calf market is going to be coming under seasonal price pressure as spring born calves begin to move to market in September and October. It is very likely that freshly weaned steer values in Tennessee could drop below $680 per head.
ASK ANDREW, TN THINK TANK: How can I avoid the volatility in these cattle and grain markets? There have been several questions similar to this the past week due to the market movement that was spurred by the fire at Tyson’s slaughter facility and the crop production resurvey. The first thing to know is that no one can anticipate random events nor can anyone fully anticipate how the market will react to information released by USDA or other entities with full certainty. What one can do is take advantage of favorable prices when they present themselves. This requires the use of price risk management which may mean learning how to use futures or how Livestock Risk Protection insurance works. There is nothing wrong with locking in a price that is profitable. It sure beats losing a couple hundred dollars per head. On a different note, a couple of events will be taking place at the University of Tennessee Research and Education Center in Greeneville, TN soon. The 2019 Regenerative Agriculture Summit is September 26-28, and the Northeast Tennessee Beef Expo is October 10.
Please send questions and comments to firstname.lastname@example.org 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 –August $99.93 -0.28; October $98.05 -0.48; December $103.53 -0.75; Feeder cattle –August $134.58 -1.20; September $132.38 -0.93; October $132.85 -0.90; November $132.75 -0.90; September corn closed at $3.71 up $0.10 from Thursday.