By Dr. Andrew Griffith
FED CATTLE: Fed cattle traded $6 lower than last week on a live basis. Prices on a live basis ranged from $110 to $117 while prices on a dressed basis were mainly $182 to $186.
The 5-area weighted average prices thru Thursday were $114.88 live, down $6.33 from last week and $184.28 dressed, down $7.47 from a week ago. A year ago prices were $134.27 live and $212.74 dressed.
Finished cattle prices have declined $10 per hundredweight in a two week period which has resulted in the basis narrowing $8. In other words, cattle feeders are not happy with how basis is narrowing, because all of the narrowing is coming from losses in the cash market and very little change in the futures market. Basis may not be cattle feeders’ biggest worry as this week’s cash cattle trade is the lowest price they have accepted since the middle of October. Looking back one year, finished cattle prices declined $30 from May through late August and early September. It is doubtful cattle feeders are concerned with a similar price decline at this time, but it is well within reason for prices to reach year ago levels in the $104 to $106 range.
BEEF CUTOUT: At midday Friday, the Choice cutout was $232.62 down $0.06 from Thursday and up $1.55 from last Fri-day. The Select cutout was $208.66 up $0.42 from Thursday and down $0.34 from last Friday. The Choice Select spread was $23.96 compared to $22.07 a week ago.
The Choice cutout has gained nearly $21 in a four week period placing packer margins securely in the black for the foreseeable future. Wholesale beef prices are at their highest level since June of last year when Choice beef eclipsed the $250 mark. Though the march of wholesale beef to higher prices has slowed the past couple of weeks, it is reasonable to expect prices to continue escalating the next couple of weeks. Even if prices do not advance much more, they will likely stay elevated through May and much of June. The seasonal pull on Choice middle meats continues to be the driver of the beef market as Memorial Day grilling is only ten days away. Consumers are sure to make a trip to the meat counter this week searching for beef items. This pull on middle meats by self-proclaimed backyard grilling maestros will result in a need to restock the meat counter the following week. This will then be followed by Father’s Day demand and put the beef market in the middle of the summer grilling holidays.
OUTLOOK: After commenting last week that feeder cattle futures were like a bobber on a fishing line and that prices had not moved in the same direction more than two consecutive days over the past month, the trend was immediately halted with four consecutive days of lower closing prices. The four consecutive days of lower trading was then stopped by modest gains on Thursday. Friday was again a day of mixed trade with little positive sentiment. Based on Tennessee weekly auction market re-ports, steers weighing less than 650 pounds were $2 to $7 lower while steers weighing 650 pounds and heavier were unevenly steady compared to last week. Similarly, heifers were $1 to $4 lower compared to a week ago. It is very apparent that light-weight calf prices are beginning to wane as summer inches closer. These lightweight calf prices will continue to grind lower as summer heat takes the place of spring rains and as demand softens. Alternatively, heavy feeders generally begin strengthening moving through the summer months as calf fed cattle come off feed and supply of long yearling cattle dwindle. However, there is no guarantee in the yearling market at this time as live cattle and feeder cattle futures struggle to gain traction. A price series of interest for producers of yearling cattle is the CME Feeder Cattle Index. This daily price index is a seven day weighted rolling average price of 700 to 900 pound steers sold in a 12 state region. What may be of interest is that the index was trading as high as $155 per hundredweight to start the year, but was just below $135 as of May 17th. May feeder cattle futures do not track precisely with the feeder cattle index, but the daily closing price range on the May contract has been $131 to $153 since the beginning of 2018 with the current price in the $132 to $133 range. Making note that futures are near the bottom of the trading range, the expectation is for futures and thus cash prices to move higher. However, it may be an arduous path moving through the summer for yearling cattle.