Cattle feeders appear to be selling finished cattle to packer buyers at a lower level of finish, or fatness, the opposite of what was taking place as late as the first quarter of this year.
Dressed weights of slaughter steers are down from a year ago, and the gap continues to widen, indicating that cattle are heading to the kill floor at increasingly lighter weights than a year earlier.
During the last week of September, the average actual steer carcass weight was 909 pounds, down 15, or 1.62%, from 924 pounds in the same week a year earlier.
The 2016 weights remain well above the 2010-2014 average of 868.4 pounds, but slaughtering larger animals is a long-term trend that shows no signs of abating. What is important in the short term is the comparison with a year ago.
FEEDERS FOLLOWING MARKET CUES
Cattle feeders are marketing cattle at lighter weights because the market is telling them to do so. However, feeders’ response to market cues is slow because futures prices are providing some mixed signals.
As of Monday’s close, every delivery month through February is showing a higher price, meaning the market wants cattle more in February than it does now. The Oct close on Monday was $97.27 per cwt, followed by the Dec contract at $99.00 and the Feb position at $100.70.
From there, the price faded to $99.87 per cwt for Apr delivery and to $93.02 for Jun and then to $91.30 for Aug. Were the market showing significant price declines from Oct forward, it’s possible that feedlot response would be more aggressive and that carcass weights would be even more divergent from last year.
The markets also tell cattle feeders that feeder cattle purchased now have a greater potential for profit than those currently on feed, said Andrew Griffith, agricultural economist at the University of Tennessee, in a weekly comment.
ARE FEEDER CATTLE UNDERVALUED?
It would appear that feeder cattle are undervalued in today’s market, Griffith said.
“Calf values are probably $100 to $150 below what their value should be in today’s market,” he said.
But even lower feeder and fed cattle prices could be in the works, since bearish momentum appears to be a very real market force.
But a crash in feeder prices or carcass weights does not seem likely either, Griffith said. Cattle feeders are right to purchase calves for the feedlot, but they could achieve similar results by keeping animals on feed.
Things must be done carefully, though. Cattle feeders must strike a balance between keeping cattle on feed and running up against a market that says it will pay less for finished cattle in the spring.
CASH CATTLE MARKETS QUIET
Cash cattle markets Monday were quiet with no defined bids or offers.
Cash markets last week traded lower, with action at $98 per cwt on a live basis, down $4 to $5 from the previous week, and at $152 to $156 dressed, down $6.
The USDA’s choice cutout Monday was $0.69 per cwt higher at $182.55, while select was off $0.59 at $171.45. The choice/select spread widened to $11.10 from $9.82 with 81 loads of fabricated product sold into the spot market.
The USDA said beef cutout values were firm on choice and weak on select product, with offerings light to moderate. Trimmings were unevenly steady on moderate demand and offerings.
The CME Feeder Cattle Index for the seven days ended Friday was $121.92 per cwt, down $1.57. This compares with the Oct settlement Monday of $121.70, up $1.32.