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Weekly Livestock Comments for November 3, 2017

By Andrew P. Griffith
FED CATTLE: Fed cattle traded $7 to $8 higher compared to last week on a live basis. Prices on a live basis were $124 to $125 while dressed prices were mainly $194.
The 5-area weighted average prices thru Thursday were $122.96 live, up $12.43 from last week and $191.80 dressed, up $16.80 from last week. A year ago prices were $104.47 live and $162.59 dressed.
The negative basis for finished cattle continues this week, but that is of little concern to cattle feeders considering the escalation of prices. In two weeks, cattle feeders are grossing $150 more per head than the cattle sold in the middle of October. The increase in gross revenue bodes well for net profits as profits per head have escalated quickly. The higher fed cattle prices are expected to persist as live cattle futures lead the way, but this also means cattle feeders will be willing to pay more for feed-er cattle. The question now turns to how high will live cattle prices go in the fourth quarter and how long will they maintain such a level. In order to hedge against being wrong, there continues to be signs of high-er prices in coming weeks.
BEEF CUTOUT: At midday Friday, the Choice cutout was $208.78 up $0.53 from Thursday and up $5.23 from last Friday. The Select cutout was $193.29 up $0.13 from Thursday and up $0.94 from last Friday. The Choice Select spread was $15.49 compared to $11.20 a week ago.
As cattle feeders are riding higher fed cattle prices, packers are not seeing the same gains in the boxed beef market compared to the increased cost of purchasing those animals. Grocery stores, restaurants, and food service entities are beginning to make purchases for the holiday centerpiece. These purchases have helped push Choice beef prices higher while Select prices have made little improvement. The demand leading up to the holiday season is generally for higher quality beef and primarily middle meats. The demand for higher quality beef will result in the Choice Select spread continuing to widen the next few weeks. Additionally, this means the Choice boxed beef price will be supported primarily by middle meats the next month or so before winter purchases begin dominating the market. Once the winter purchases take over then the Choice Select spread will begin narrowing and could narrow to near zero in January or February. Packers will be more concerned with maintaining positive margins than anything else.
OUTLOOK: Feeder cattle futures prices have had two consecutive weeks of strong moves to the upside. However, this two week move is just a small part of a much larger move that has been in motion since early August. Feeder cattle prices generally experience their annual apex during the summer months, but the seasonal pattern has not held for cattle ready to enter the feedlot. Placements into feedlots the past few months have been extremely strong and this has supported feeder cattle prices. Feeder cattle futures prices have gained $15 to $20 per hundredweight since early August. This price increase is not like what the market participated in during the 2013 to 2015 time period where volatility ruled the market. Feeder cattle prices the past three months have slowly and methodically made gains which bode well for a sustained feeder cattle market. The anomaly in the feeder cattle market over most of that time was that finished cattle prices softened much of that time. Thus, the first ten or eleven weeks of stronger feeder cattle prices were not driven by the live cattle market indicating significantly higher prices. How-ever, the strength in the market the past two weeks has largely been due to feeder cattle markets chasing the live cattle markets run to the upside. The strong finished cattle market provides support for continued strength in the feeder cattle market moving forward. If the live cattle market makes a turn to the downside then feeder cattle will quickly and drastically follow. The calf market has also been supported by the strength in downstream markets. However, the normal seasonal tendency for calf prices to soften during the fall months is equally fighting the upward price movement which has left calf prices fairly steady the past several weeks. The one guarantee about all price projections is that they are always incorrect. However, the hope is that the correct direction of prices is predicted which can contribute to decision making.