Dr. Andrew Griffith, Assistant Professor, Livestock Marketing Specialist, Department of Agricultural and Resource Economics, University of Tennessee
FED CATTLE
Fed cattle traded $2 lower on a live basis compared to last week. Prices were mainly $182 to $185 on a live basis. Dressed trade was mainly $290 to $292.
The 5-area weighted average prices thru Thursday were $183.74 live, down $1.99 compared to last week and $290.52 dressed, down $3.42 from a week ago. A year ago, prices were $182.69 live and $290.62 dressed.
With plenty of finished cattle available, packers have no reason to push prices higher. As much as one might think the cattle feeder should be in the driver’s seat when it comes to the leverage battle, they clearly do not reign in the leverage category. The packer continues to run the show as they dictate slaughter levels and attempt to keep boxed beef prices elevated. The packer certainly has work to do as it relates to beef prices, and some of that comes at the expense of cattle feeders. Cattle feeders only recourse is to pay less for feeder cattle as they are forced to market finished cattle into a market that has already backed cattle up in the feedlot. This will be an ongoing story the next few months.
BEEF CUTOUT
At midday Friday, the Choice cutout was $309.27 up $0.61 from Thursday and down $9.09 from a week ago. The Select cutout was $297.49 up $1.30 from Thursday and down $4.81 from last week. The Choice Select spread was $11.78 compared to $15.98 a week ago.
What are packers to do as the beef market rolls into a period when beef demand tends to be seasonally soft? They will manage production the next several months just as they have been doing most of the year. One can point to strong beef production this year and say packers are not managing beef production, but cattle slaughter rates would beg to differ as total slaughter is down compared to last year. The difference maker in the equation is heavier dressed weights of cattle. All of the Labor Day purchasing is complete. Packers may have an opportunity to restock beef counters following late consumer purchases, but this will not provide much support for wholesale beef prices. Leaders of the country, Federal Reserve, or any other entity that wants to speak on the strength of the economy and consumers willingness to purchase goods can tell any story they like, but consumers have not done enough to keep beef prices increasing. This does not mean consumers are moving away from beef, but they do not appear to be increasing demand.
OUTLOOK
Based on weekly auction market averages, steer prices were $3 to $7 lower compared to last week while heifer prices were $5 to $9 lower compared to the previous week. Slaughter cow prices were $1 to $4 lower compared to the previous week’s weighted average price while bull prices were steady to $2 lower compared to the prior week. It is as if depression has set in across all commodity markets for both prices and producers. There are sure to be some producers satisfied with crop yields and cattle growth if they have had adequate moisture to grow crops and pasture, but for those in drought-stricken areas, it is much less pleasant. Thus, as feeder cattle futures and live cattle futures wallow in the doldrums of lower prices relative to what they were six or eight weeks ago, cattle producers in drought regions are suffering in two ways. The only relief for some will be lower feed prices if it is in the form of grain. Alternatively, many drought-stricken regions will likely witness higher hay prices as late summer and fall cuttings of hay are diminished and earlier than expected hay feeding becomes necessary. The question many producers want to know the answer to today has to do with prices of freshly weaned calves as many of the spring born calves will soon be making their way to market. The outlook does not appear to be headed for positive price gains the next few months as feeder cattle futures continue to remain depressed with no sign of recovering. Similarly, the seasonal increase in cattle coming to market will put pressure on prices through the next three months. Lastly, regions with limited forage availability may also see weakening demand due to increasing cost of gain when forage availability is limited. The current conditions are certainly frustrating, and the news gets worse because there does not appear to be much relief or change in sight. When times are tough, there generally are some opportunities not otherwise available. Producers should keep their eyes open for those opportunities.
