by Andrew Griffith, Livestock Marketing Specialist
November 22, 2024
FED CATTLE
Fed cattle traded $1 higher on a live basis and steady on a dressed basis compared to last week. Prices were mainly $185 to $186 on a live basis. Dressed trade was mainly $290.
The 5-area weighted average prices thru Thursday were $185.61 live, up $0.87 compared to last week and $290.26 dressed, down $0.61 from a week ago. A year ago, prices were $176.99 live and $280.09 dressed.
Steady to higher prices may be all cattle feeders could expect this week as wholesale beef prices were slightly higher. One would think higher beef prices would translate to higher finished cattle prices, but with an ample quantity of cattle still in the pipeline, packers are not ready to relinquish all of their control on the market. If packers are able to push beef cutout prices higher next week then cattle feeders may be a little stingier with their cattle. They can about feed the cattle they have now just as cheap as having to purchase new inventory. On that front, cattle feeders have an $800 margin on the buy of an 800 pound steer and the sell of a 1,500 pound steer. Thus, they have $800 to put on 700 pounds. The margin is fairly tight.
BEEF CUTOUT
At midday Friday, the Choice cutout was $308.23 up $1.44 from Thursday and up $4.82 from a week ago. The Select cutout was $272.43 down $0.49 from Thursday and down $4.36 from last week. The Choice Select spread was $35.80 compared to $26.62 a week ago.
As if on cue, beef prices increase as the market is already moving to the next holiday. Thanksgiving meals have not even been eaten, but retailers and food service are already moving to the next event. This is a typical move on these entities part, but there is much less time between Thanksgiving and Christmas this year compared to last year, which may result in one of two outcomes. The first is beef market participants get busy buying and run wholesale beef prices higher in quick fashion to secure the remainder of holiday needs. The alternative is the shorter period of time to purchase beef for Christmas and other holiday gatherings results in less beef moving compared to years when there are a few more days, which hurts the whole industry. Some industry participants will choose the first option while others may fall into the second option. The decision will depend on the quantity of risk they are willing to take and how high wholesale beef prices move. There is a good chance most buyers will take the risk, because no risk results in little to no reward.
OUTLOOK
Based on weekly auction market averages, steer prices were $4 to $11 higher compared to last week while heifer prices were $2 to $8 higher compared to the previous week. Slaughter cow prices were steady to $2 lower compared to the previous week’s weighted average price while bull prices were $1 to $2 lower compared to the prior week. Given this week’s prices on Tennessee auctions, a 525 pound steer was valued near $1,450 per head while a 575 pound steer was valued near $1,525 per head. These appear to be profitable prices for the cow-calf producer, but what does it look like for the margin operator. Assuming a person purchases these animals with the intentions of adding 300 pounds of weight over 150 days, the margin is $587 for the 525 pound steer and $588 for the $575 pound steer. Thus, if the buyer can add 300 pounds for less than $588 then a profit can be achieved. Assuming a 4 percent death loss and a cost of gain of $1 per pound, there is about $200 of profit in each head, which is an 11 percent return on the investment. Eleven percent may be higher than the interest rate one can receive at the bank, but it is not much of a return given the risk being taken by the purchaser. More plainly stated, there are not many investors who would invest in a company that is only expecting an 11 percent return with this high of a risk factor. However, the nominal dollar value return per head of $200 is very much in line with historical averages or expectations in stocker and backgrounding operations. Is it a poor business move to purchase these animals at such high prices? The answer is yes if considering the return on investment. The answer is no if a person can maintain their expected income level and take on the extra risk imposed by higher cattle prices. For those who are asking if calf prices can push even higher, the answer is yes, but it will require yearling cattle prices to push higher. In fact, yearling cattle prices could increase marginally without a higher calf price being experienced.
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, 2024 totaled 11.99 million head, up 0.3% compared to a year ago, with the pre-report estimate average expecting a decrease of 0.1%. October placements in feedlots totaled 2.29 million head, up 5.3% from a year ago with the pre-report estimate average expecting placements up 3.3%. October marketing’s totaled 1.85 million head up 4.7% from 2023 with pre-report estimates expecting marketings up 5.1%. Placements on feed by weight: under 700 pounds up 4.9%, 700 to 899 pounds up 6.4%, 900 pounds and over up 3.5%.
ASK ANDREW, TN THINK TANK
With high priced females in the market, can a person be profitable purchasing or retaining those females, and how long will the strong market prices remain? If the answer was known for sure by anyone then they could take advantage of the market opportunity. However, given that no one knows the exact answer, here are a few thoughts. The calf market should see relatively high prices for at least three more years. The contradiction to that statement is that calf prices did not remain strong during the last rebuilding phase. No reason to argue that, but a more moderate growth rate or expansion rate is expected this time, which means calf prices will remain elevated longer. In response to purchasing females and their profitability, how much can a person make with cattle if they have no cattle? If cattle are purchased then there is always a possibility of losing money, but it is guaranteed there will be no money made in cattle if a person does not own any. The alternative is renting all of the pasture and hay ground to me!
Please send questions and comments to agriff14@utk.edu.
FRIDAY’S FUTURES MARKET CLOSING PRICES
Friday’s closing prices were as follows: Live/fed cattle –December $186.78 +1.18; February $188.20 +0.78; April $189.95 +0.43; Feeder cattle –January $254.30 +0.85; March $253.13 +1.03; April $254.35 +1.23; May $254.80 +1.28; December corn closed at $4.26 down 1 cent from Thursday.