by Andrew Griffith, Livestock Marketing Specialist
September 23, 2022
FED CATTLE
Fed cattle traded $1 to $2 higher compared to last week on a live basis. Prices on a live basis were mainly $143 to $146 while dressed prices were mainly $227 to $230.
The 5-area weighted average prices thru Thursday were $144.55 live, up $1.76 compared to last week and $229.03 dressed, up $2.48 from a week ago. A year ago, prices were $123.90 live and $198.65 dressed.
The finished cattle price bounced back this week from last week’s price decline. Cattle feeders are not likely to have too many complaints with finished cattle prices remaining elevated at this point in the year. Current prices bode well for the market moving into the fourth quarter of the year and the first quarter of 2023. The only drag that could come on the market is consumer disposable income being shifted to other goods and necessities. With higher interest rates and inflation that remains intact, consumer disposable income may or may not be spent on beef. How the consumer reacts to these issues will determine beef prices, which will then filter down to the cattle market.
BEEF CUTOUT
At midday Friday, the Choice cutout was $248.29 down $0.11 from Thursday and down $4.73 from a week ago. The Select cutout was $220.59 down $1.52 from Thursday and down $6.89 from last week. The Choice Select spread was $27.70 compared to $25.54 a week ago.
The monthly cold storage report was released this week. The quantity of beef in cold storage at the end of August totaled over 515 million pounds which is 101 million pounds or 24 percent more than the same month one year ago. A direct comparison to 2021 is not completely representative of August as most of the summer months in 2021 had much smaller cold storage stocks than is typical. Thus, when compared to the five-year average for August, the quantity of beef in cold storage this year is only 41 million pounds greater than the five-year average. For some purveyors, this may be a cause for concern. However, most of the beef in cold storage is typically grinding product, which should be in strong supply given the extremely strong cow slaughter rate. Additionally, there are sure to be a few entities storing up a little product in case beef prices make a surge higher. One last thing that should reduce concern is that the quantity of beef in cold storage is essentially equivalent to one week of beef production, which means there is really not that much in storage.
OUTLOOK
Based on Tennessee weekly auction average prices, steer prices were $4 to $6 lower compared to last week while heifer prices were $3 to $5 lower compared to a week ago. Slaughter cow prices were $2 to $3 lower compared to a week ago while bull prices were $2 to $4 lower compared to the previous week. Based on individual auction average prices, it would appear that quality of calves was highly variable, which is not unexpected as producers begin to set wheels under the spring born calf crop. The weather the past couple of weeks has been conducive to harvesting hay and getting livestock trailers in the field. It is likely the run of calves will escalate the next several weeks as producers attempt to take advantage of cooler temperatures and dry weather. At the same time, some producers may be looking to move calves a little earlier than normal if there is any chance it would save them a few bales of hay. Feeder cattle futures have softened the past month, which has taken a little wind out of some people’s sails as it relates to selling cattle. However, the market remains strong relative to recent years, and it is offering a strong price for most classes of calves and feeder cattle. The major issues putting pressure on cattle markets continue to be high input prices, expectations for consumer disposable income, and the ever-increasing interest rates that further reduce consumer disposable income. In the short run, it appears to be a negative for cattle prices that there are some major issues tempering prices. There is no doubt there are some negative repercussions. However, these factors may keep the market from repeating 2014 through 2016 when cattle reached record prices and then collapsed. The way the environment is setting up now may help the market to grow slowly, which will result in cattle prices increasing slowly and then decreasing slowly as producers adjust total production.
The September cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of September 1, 2022 totaled 11.28 million head, no change compared to a year ago, with the pre-report estimate average expecting no change. August placements in feedlots totaled 2.11 million head, no change from a year ago with the pre-report estimate average expecting placements down 1.5%. August marketing’s totaled 2.00 million head up 6.4% from 2021 with pre-report estimates expecting a 6.0% increase in marketings. Placements on feed by weight: under 700 pounds up 4.2%, 700 to 899 pounds down 1.1%, 900 pounds and over down 2.7%.
ASK ANDREW, TN THINK TANK
Can I hedge the sale of cattle and use basis to my advantage? First, we have a publication that contains historical basis information for feeder cattle in Tennessee. Second, the basis values that are collected are statewide averages and not specific to an operation. Third, producers should begin keeping their own basis values, because those values will be more appropriate for a specific operation than the statewide average values. Now to address the more specific question as it related to taking advantage of a stronger basis in some months rather than others. For those who do not know, basis is simply the difference in the cash price and the futures price at the time cattle are physically sold. Thus, there is an expectation of what cash price will be received given the futures price for a given time period. It does not matter if basis is historically strong or weak in a given time period. What matters is if the basis will strengthen or weaken and if the price is more profitable between that decision time and when the cattle will be physically sold.
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 –October $144.25 -0.60; December $148.55 -0.80; February $152.70 -1.08; Feeder cattle –September $178.13 -0.08; October $178.35 +0.38; November $178.25 +0.20; January $179.48 -0.48; December corn closed at $6.77 down 12 cents from Thursday.