Weekly Livestock Comments for July 12, 2019
Dr. Andrew Griffith, Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee
FED CATTLE: Fed cattle traded $3 higher compared to last week on a live basis. Live prices were mainly $112 to $115 while dressed prices were mainly $181 to $184.
The 5-area weighted average prices thru Thursday were $114.64 live, up $3.43 from last week and $183.06 dressed, up $2.94 from a week ago. A year ago prices were $110.00 live and $174.79 dressed.
Feedlots have been moving out inventory which has made managers hungry to fill those pens with feeder cattle. At the same time, feedlot managers found a way to push packers into higher finished cattle prices which is a rarity for the time of year. One might assume the higher prices this week means the market has reached its summer low and that may be the case. However, the finished cattle market will continue to be pressured the next several weeks moving through July and August. Thus, there is a good chance finished cattle prices yo-yo the next several weeks as packers and feedlots jockey for position. The price movements will not be mountains but more like mole hills that get hit by the lawn mower.
BEEF CUTOUT: At midday Friday, the Choice cutout was $213.88 up $0.11 from Thursday and down $4.28 from last Friday. The Select cutout was $190.62 down $0.17 from Thursday and down $4.53 from last Friday. The Choice Select spread was $23.26 compared to $23.01 a week ago.
Monthly meat trade data was released last week. An argument could be made to make the beef export situation sound bleak, or an argument could be constructed that would be slightly positive to the beef export market. Beef and veal exports in May totaled more than 272 million pounds which is only 300,000 pounds less than May 2018. How-ever, beef exports for the first five months of 2019 are 45 million pounds lower than they were for the same five months in 2018. The markets with the biggest declines include Hong Kong, down 56 million pounds, Canada, down 18 million pounds, and Japan, down nearly 16 million pounds. The countries that continue to support beef exports are primarily South Korea, up 28 million pounds and Mexico, up nearly 11 million pounds. From a beef export value standpoint, beef export value is $42.3 mil-lion lower for the first five months of 2019 compared to the same months in 2018. However, the per unit value of beef and veal exports is 2 percent higher in 2019 than in 2018.
OUTLOOK: There are no price comparisons this week due to most livestock markets in Tennessee being closed last week due to Independence Day. However, one can take a look at the feeder cattle index to see which way feeder cattle are trending. The feeder cattle index is a seven day weighted rolling average of actual cash sales in a twelve state region with steers weighing 700 to 900 pounds being recorded in the price. In short, the feeder cattle index value represents an 800 pound beef steer in the heart of cattle country. Since the beginning of July, the feeder cattle index price has increased $6 per hundredweight which is the largest price swing in the market in several months. Additionally, the current index value is the highest value since late April and early May. The surge in the index value is largely due to cattle feeders looking to reload pens that have emptied recently. It makes logical sense that cattle feeders were looking to capitalize on a somewhat soft feeder cattle market in May and June, but the strong demand for feeder cattle has boosted prices. This also resulted in pushing feeder cattle futures higher. August feeder cattle futures have actually in-creased $10 per hundredweight off their June 25th low compared to the $6 cash jump. The widening of the basis on futures and cash prices presents a small opportunity for producers looking to market feeder cattle this fall. For instance, the October feeder cattle contract is trading $4 higher than the current feeder cattle index. One would expect these two prices to converge by October. Thus, a person with inten-tions of marketing cattle in October may be able to take ad-vantage of the $4 difference and capture the basis. This strate-gy is not exactly the same for a producer who plans to market freshly weaned calves this fall. The fall marketing time period is still a concern as calf prices are soft and are expected to be even softer by October and November.