By Dr. Andrew Griffith
Fed cattle traded $3 lower on a live basis compared to last week. Live prices were mainly $116 to $117 while dressed prices were mainly $184 to $186.
The 5-area weighted average prices thru Thursday were $116.70 live, down $3.70 from last week and $185.89 dressed, down $6.53 from a week ago. A year ago prices were $114.88 live and $184.28 dressed.
Finished cattle prices continued their consistent weekly decline for the third consecutive week. If a fourth consecutive week of a $3 loss were to occur then most of the positive basis with the June live cattle contract will have evaporated. The positive basis has been the motivating factor for most feedlot managers to push cattle out of the feedlot even though they would prefer to hold the line on cash traded cattle. The current week’s cash trade is still resulting in a $6 positive basis, but the expectation is for this to be whittled away over the next month. It would appear the finished cattle market is now in a situation where things are going to get worse before they start to get better.
BEEF CUTOUT: At midday Friday, the Choice cutout was $219.71 up $0.15 from Thursday and down $1.23 from last Friday. The Select cutout was $208.05 up $0.17 from Thursday and up $0.21 from last Fri-day. The Choice Select spread was $11.66 compared to $13.10 a week ago.
Boxed beef the first several months of 2019 has traded seasonally from a price stand-point. Box prices started off 2019 much stronger than the previous year, but the early year strength did not deter Choice boxes from steadily climbing to an apex of $233.49 in the seventeenth week of the year. This year’s price peak was three weeks earlier than the previous year, but it also exceeded the 2018 price peak by $1.56 per hundredweight. Following the 2018 apex, Choice boxes declined nearly $28 over an eleven week time frame before experiencing a Labor Day jolt and the remainder of its seasonal decline into the fall. This is all said to hopefully get a grasp on the expectation moving through 2019. It is almost certain that Choice beef has hit its 2019 high and there is a real possibility that Choice boxes will test the $200 mark. It may take some additional bad news to push prices below $200, but it could occur. Similarly, the Choice Select spread has been seasonal, but the spread is nearly $10 lower than the widest spread a year ago which hints toward supply and demand of Choice versus Select beef.
OUTLOOK: Based on Tennessee weekly auction market averages, steer prices were steady to $3 lower compared to last week while heifer prices were steady to $2 lower compared to a week ago. Alternatively, slaughter cow prices were $2 to $3 higher compared to a week ago while slaughter bull prices were $1 higher. It is not surprising to start seeing the lightweight calf market begin to soften as the market begins to move towards late spring and early summer. However, it is disconcerting to watch yearling cattle prices soften during this same time period when they typically begin seeing support. It would appear feeder cattle futures have done their frolicking at the top of the market and are now wallowing in their lows. The constant question has to do with what caused feeder cattle futures to suddenly swallow $20 of their price since Easter. The answer from a trading standpoint may be over analyzation. The current price on most feeder cattle futures contracts is only $8 to $12 lower than the range it traded in from late October to the middle of March. During this entire time period, cash feeder cattle prices never surged higher nor did they have a washout. People actually making a living with cattle have continued trading on a flat market with little change in price the past seven months. However, trading on the futures market was gauging placements into feedlots during this time period and the concerns with feeding conditions, and total beef production. However, it would almost appear they forgot the estimated cow herd size as of January 1 and the 2018 calf crop. These animals never disappeared from existence nor did they grow wings and fly to an island in the Caribbean. However, the wild trading turns provided opportunities and disappointments to many cattle producers. The advice today is to sit tight, watch for another opportunity, and take action as an opportunity will surely present itself even if it is only for a moment.