Tennessee Market Highlights
By : Dr. Andrew P. Griffith
FED CATTLE: Fed cattle trade $2 to $3 lower compared to last week. Prices on a live basis were primarily $117 to $118 while
prices on a dressed basis were mainly $187 to $189. The 5-area weighted average prices thru Thursday were $117.18 live, down $0.84 from last week and $187.88 dressed, down $0.18 from a week ago. A year ago prices were $118.00 live and $184.09 dressed. The finished cattle market is feeling the effects of the dog days of summer as the air temperature continues to intensify and cattle slaughter remains strong. Cattle feeders are hoping this is the bottom of the market as fed cattle prices have declined 19 percent from their spring high. Cattle feeders continue to be profitable on a cash to cash basis, but margins are certainly tightening as fed cattle prices decline and as the purchase price of animals coming off feed increases. The higher feeder cattle prices paid in the spring will put pressure on cattle feeders if the fed market does not turn in the coming weeks. If $117 is the low then the seasonal would push live cattle over $130 during the holidays, but this may be a tough target to hit.
BEEF CUTOUT: At midday Friday, the Choice cutout was $205.49 down $0.94 from Thursday and down $1.42 from last
Friday. The Select cutout was $195.89 down $0.77 from Thursday and up $1.30 from last Friday. The Choice Select spread
was $9.60 compared to $12.32 a week ago. Packers continue to process cattle at a rapid pace as heifer slaughter year to date is 10 percent higher than the same time period in 2016 while steer slaughter is about 4 percent higher than a year ago. Similarly, cow slaughter has exceeded year ago levels by about 10 percent thus far in 2017. Increased slaughter rates and reduced cattle weights have led to beef production being about 4 percent higher than the same time period in 2017. Increased beef production has largely been absorbed by increased exports and declines in beef imports. Increased domestic production and exports along with the decline in imports has essentially resulted in domestic per capital beef availability being the same as a year ago. Strong demand for beef has helped support beef prices the first seven months of the year. Domestic demand is expected to remain strong, but export demand is less certain considering several trade issues and
policy. Packers will continue harvesting a large number of cattle as long as margins are positive.
OUTLOOK: The release of the July cattle on feed report and the mid-year cattle inventory report last Friday put a damper on the feeder cattle market as it relates to the Chicago Mercantile Exchange. The July 1 cattle inventory report showed cattle and calves totaled 103 million head which is four percent higher than July 2015. Additionally, it was reported all cows and heifers that have calved totaled 41.9 million head which is five percent higher than two years ago. The information provided by this report would seem to indicate continued cattle herd expansion and thus more calves to hit the market in the coming months and years. However, it is somewhat difficult to determine the rate of expansion in the cattle herd due to the inconsistency of the mid-year inventory report. The value of the report has somewhat diminished the past few years because the report was suspended in 2014 and 2016. Though the value is reduced, some information is better than no information and provides insight into the next several months. In relation to the July cattle on feed report, surveyed respondents indicated cattle and calves on feed up 4.5 percent from July 2016. The most influential information may be that June placements were up 16.1 percent from the previous year with the majority of the increase being from animals weighing
less than 800 pounds. Increased placements will likely result in increased cattle marketings in six to seven months. Though this information is informative the question being asked by most in the industry is if the increased placements are from pulling cattle out of the country early or if there were that many additional cattle out there. The most likely scenario is that there are a few more cattle and some cattle were pulled forward. The feeder cattle marker will likely bounce back from the bearish news and continue to trade in a steady range that the market has been in for the past three months or so. Producers are still encouraged to use price risk management strategies if deemed necessary.