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Weekly Livestock Comments for November 23, 2018

By Dr. Andrew Griffith
FED CATTLE: Fed cattle traded $4 higher on a live basis compared to last week. Prices on a live basis were mainly $115 to $117 while dressed prices were mainly $181 to $185.
The 5-area weighted average prices thru Thursday were $115.37 live, up $4.32 from last week and $181.49 dressed, up $5.23 from a week ago. A year ago prices were $118.92 live and $189.04 dressed.
The cattle on feed report was not as bearish as expected as cattle on feed numbers continue to exceed year ago numbers. The on feed report should not have provided a reason for finished cattle prices to escalate this week to the degree they did. Thus, what caused finished cattle prices to run like they did this week? The best answer is that packers were trying to secure cattle to meet holiday needs. This means previous analysis could not have been more incorrect. The futures market would support stronger prices moving through the month of December and into 2019. Higher prices will can only benefit cattle feeders and improve margins, but feedlot managers should look at hedging a few sales if margins are positive.
BEEF CUTOUT: At midday Friday, the Choice cutout was $213.33 up $0.22 from Thursday and up $0.58 from last Friday. The Select cutout was $198.93 up $0.67 from Thursday and up $1.37 from last Friday. The Choice Select spread was $14.98 compared to $15.77 a week ago.
The monthly cold storage report was re-leased Wednesday detailing the quantity of beef and other meats in cold storage as of the end of October. Beef in cold storage totaled 515 million pounds which represented an increase of 1.6 percent from September and 1.6 percent from October 2017. The cold storage report for beef is only categorized as boneless beef or beef cuts which provide little information of what products are really in cold storage.
Boneless beef generally makes up about 90 percent of the product in cold storage. Alternatively, pork cold storage is more specific and covers most of the primal cuts which can help in understanding wholesale prices of different cuts. Moving back to beef, the wholesale price of beef remained fairly strong through the holiday week. There may still be some end of the year holiday beef buying still on the table which could provide support to the beef cutout. How much buying is left to be completed will determine the amount of support provided as retailers will soon be moving their focus to end cuts.
OUTLOOK: If a person solely used feeder cattle futures as his or her only cattle price information then that person would likely be extremely confused at this juncture. The reason for the confusion would be largely due to prices fluctuating tremendously without any solid information to cause such fluctuations. Using the January feeder cattle futures contract, the price has ranged from $138.18 per hundredweight in early April to $156.45 in early October with the price sitting in the mid to upper $140s the past couple of weeks. However, there has been significant price swings in feeder cattle contracts since the beginning of October as the January contract has had a $13 per hundredweight range during that time period. The tendency of most in the industry is to view the fluctuation in futures prices as a negative when in fact it could be viewed as very positive. The reason most producers would view futures price fluctuations as a negative is because a downward move in the futures generally has a negative impact on cash selling prices which means fewer dollars of revenue at sale time. This is only negative if prices fall be-fore a producer markets his or her cattle. Alternatively, an increase in futures just prior to marketing cattle could result in greater revenue. However, a producer simply being at the will of the market given its ups and downs is not a favorable marketing strategy. One should look at the opportunities offered by the futures market to hedge cattle sales at profitable levels. In the case of January, there were 17 days in which the contract traded above $153 per hundredweight. Only one of those days had the highest price, but one does not have to hit the very top but rather lock in a profit. This is easier said than done as no one wants to miss out on the market moving higher, but there are plenty of com-plaints when the market moves lower. The market almost always provides a favorable marketing opportunity if one will just start looking for it.
The November cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of November 1, 2018 totaled 11.69 million head, up 3.2% com-pared to a year ago, with the pre-report estimate average expecting an increase of 4.3%. October placements in feedlots totaled 2.25 million head, down 0.6% from a year ago with the pre-report estimate average expecting placements down 0.9%. October marketing’s totaled 1.89 million head up 4.8% from 2017 with pre-report estimates expecting a 4.2% increase in marketings. Placements on feed by weight: under 600 pounds down 5.2%, 600 to 799 pounds down 11.4%, 800 to 899 pounds down 1.4%, and 900 pounds and over up 8.0%.