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Weekly Livestock Comments by Dr. Andrew P. Griffith

FED CATTLE: Fed cattle traded $2 higher compared to last week on a live basis. Prices on a live basis were mainly $111 to $112 while dressed prices were mainly $177 to $180.
The 5-area weighted average prices thru Thursday were $111.91 live, up $1.96 from last week and $177.67 dressed, up $2.79 from a week ago. A year ago, prices were $113.68 live and $180.00 dressed.
The December live cattle contract has been on a straight up trajectory since September 9th when it hit its contract low. Over that time period, the December contract price has increased $19. The increase in futures prices has started to support cash prices for finished cattle which has been evident in the cash market the past two weeks. Futures prices have live cattle moving higher before the end of the year with further gains heading into late winter and early spring. The market is beginning to take off, but it is difficult to determine what all is driving this uptick. With little information to support surging prices, now is the time to take advantage of hedging opportunities especially with the strong premium in futures compared to cash.
BEEF CUTOUT: At midday Friday, the Choice cutout was $232.34 up $0.16 from Thursday and up $6.37 from last Friday. The Select cutout was $206.91 up $0.42 from Thursday and up $7.19 from last Friday. The Choice Select spread was $25.43 compared to $26.25 a week ago.
Cutout prices received a hefty boost from the Tyson fire in August and then came under seasonal pressure in October. The tide is once again turning towards strength in beef prices. Most of the strength in cutout prices right now is coming from the rib and brisket primal with slight support from the chuck and round. The chuck and round will bear more of the burden of supporting the cutout value moving through the winter months. The loin primal price is disappointing, but it should begin providing support to the carcass value as holiday beef purchasing takes center stage closer to Christmas. The short plate and flank are the two lowest value primal cuts in a beef carcass, and their prices are both extremely soft. Moving away from the cutout value but still focusing on beef prices, 90 percent lean beef prices have remained strong despite seasonal price pressure in the fourth quarter. Current prices are about 16 percent above where they were this time one year ago, but they are slightly lower than the five-year average price for the beginning of November.
OUTLOOK: Based on Tennessee weekly auction market price averages, steer prices were steady to $3 lower compared to last week while heifer prices were mostly steady compared to a week ago. Slaughter cow prices were steady to $2 lower compared to the previous week while bull prices were steady to $1 lower compared to a week ago. From the perspective of the cow-calf producer who tends to wean calves on the trailer during the fall cattle run, there is not much to say other than calf prices continue to struggle and the month of November is not likely to bring any optimism. This point can be reiterated for the producers who market cows that will be headed to slaughter this fall. Slaughter cow prices are soft and will not gain any strength until after the first of the year. The one bright spot the past couple of weeks is the yearling cattle market. Cattle ready to go on feed have been rejuvenated by stronger live cattle futures which have spurred feeder cattle futures. The November feeder cattle contract price has increased more than $8 per hundredweight since the first day of October which has resulted in a very similar increase in load lot cattle being marketed through Tennessee auctions. One video sale in the state had several loads of steers weighing between 850 and 880 pounds that all traded between $139 and $140 per hundredweight this week. There is no way of knowing what finished cattle will be worth in five months, but cattle feeders are able to hedge a profit by paying these feeder cattle prices and pricing finished cattle using live cattle contracts. The bigger picture of this price movement is that the cattle industry may be moving out of its cyclical price lows and starting the portion of the price cycle where prices are increasing. This means average prices in 2020 are likely to be slightly higher than prices in 2019. This is a strong assumption when only using limited information, but it is a sign towards positive price movement.
ASK ANDREW, TN THINK TANK: I had the opportunity to assist in a couple of dairy meetings this week where we talked about dairy outlook and price risk management tools for dairy operations. One of the subjects was futures and options. One producer commented that he did not think futures and options were of much use to most of the producers in the area given all of the available government associated programs. I completely understand this producer’s thought process. However, I do think there are times when futures and option are a more appropriate tool than the government associated programs. The same holds true in the cattle industry. There is no one price risk management tool that is the correct tool in every situation. However, there are times when one tool is more appropriate than the other tools. This is why it is important to be familiar with all the tools available so one can benefit from the correct tool at the correct time. I hope readers are willing to study what is available so they can use them if and when appropriate.
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