Dr. Andrew P. Griffith
FED CATTLE: Fed cattle traded $5 higher on a live basis compared to last week. Live prices were mainly $110 while prices on a dressed basis were mostly $170. The 5-area weighted average prices thru Thursday were $106.98 live, up $1.94 from last week and $168.05 dressed, up $1.77 from a week ago. A year ago prices were $135.07 live and $213.25 dressed. Live cattle prices appear to have turned the corner again, but market analysts thought that a couple times already this year. Prices strengthened this week on both the futures market and the cash market. It would appear now that summer lows are now in for the live cattle market, but that could be because there are only a couple more days of summer. The live cattle market should begin creeping up the next several weeks as it searches for its fall high which precedes the holiday season. Cattle feeders are feeling a little relief with this week’s higher prices, but the losses that have mounted and that continue to mount have put them in a situation where profits must start rolling in.
BEEF CUTOUT: At midday Friday, the Choice cutout was $186.06 down $0.21 from Thursday and down $1.88 from last Friday. The Select cutout was $178.53 down $0.30 from Thursday and down $4.47 from last Friday. The Choice Select spread was $7.53 compared to $4.94 a week ago. Wholesale beef prices continue their downward spiral. Wholesale beef prices have declined for five consecutive weeks resulting in $15 losses for both the Choice and Select cutouts over that time period. The price decline is largely related to beef production which is 5.2 percent higher than 2015 year to date. Looking at a shorter time period, beef production the past nine weeks is 7.9 percent higher than the same nine weeks a year ago. The increased production this year compared to last year is due to pulling cattle forward this year while last year those cattle were being backed up to put more weight on them. There is mixed information in the industry as it relates to fall cattle slaughter and beef production. The most likely scenario is that the market has pulled enough cattle forward that beef prices should be supported some as the market heads into the fall and the winter holiday season. Cattle markets will only go as far as beef markets go so all eyes will be on wholesale beef prices the next several months and years.
OUTLOOK: There has been little to no positive price improvement in calf and feeder cattle markets since the first week of August. Even though calf and feeder cattle markets were unevenly steady to lower this week compared to last week, the first sign of a market that may be trying to find a bottom was evident this week. It is hard to imagine the calf market having already bottomed since the fall calf run is still ahead of the market, but the market has already reached the fall price level I projected for 500 to 600 pound steers in the mid to upper $120s. Thus, it is likely lightweight freshly weaned calf prices will still lose a few more dollars before the bottom is found. There should not be much more downside price risk for freshly weaned calves but that is simply because the wind has been taken out of the sails and prices are already putting producers in a bind as it relates to profit potential. Similarly, feeder cattle prices have already reached the level projected several weeks ago for fall prices. There is likely less downside risk to feeder cattle prices than calf prices as cattle feeders look to refill pens and as the quantity of cattle ready to enter the feedlot dwindles. No matter what the current analysis is though, producers should remember that the volatility that has been in the market the past couple of years could throw another curveball. Price volatility is still highly visible and will likely remain in the market for several more months. It has been difficult to manage price risk using futures, options, and livestock risk protection insurance so producers must find another method of reducing risk. This will largely come in the manner of reducing production risk and input price risk. Another market to remember is the slaughter cow market. Many producers will be sending cows to town as they wean calves. The slaughter cow market has witnessed some weakness the past few weeks and will likely witness lots of pressure in October and November when large numbers come to market. Feeding those cows for 45 to 60 days may be a good alternative for some producers.
Source: osu.edu