Economist: Cattle Feeding Looks Profitable For Now

Cattle feeding looks profitable in the near term, said University of Tennessee Agricultural Economist Andrew Griffith.

In his weekly Tennessee Market Highlights, Griffith said prices this month have made a run at 2016 prices, but it may be late summer before the market sees a week where 2017 prices exceed 2016.

As of Friday, the USDA’s choice beef cutout was $190.42 per cwt, down $1.18 from Thursday and down $0.97 from the previous Friday’s $191.39.  The choice/select spread was $3.78, compared with $3.93 a week earlier.

Beef cutout prices showed some stability last week, halting a steep slide from the previous two weeks.  However, fed cattle prices went up $1.25 to $2 per cwt, pinching packer margins.

 

PACKER RESPONSE

 

Cattle traders now are waiting to see what packers will do with their new market situation this week, Griffith said.  Packers could trim slaughter rates to increase beef prices and pressure cattle prices.  Slaughter Monday was estimated by the USDA at 115,000, a fairly normal Monday level this month.

Packers also could keep slaughter rates steady in the short term to fill beef orders, he said.  This is the response Griffith favored.

With the Valentine’s Day observance coming in three weeks, restaurants will have boosted orders for beef and chicken – beef for the men and chicken for the ladies, market sources said.  Anecdotal evidence has shown that women often order smaller beef cuts and more chicken than their male companions.

However, restaurant traffic picks up in mid-February as women are treated to an away-from-home meal, market sources said.  This year, with Valentine’s Day falling in the middle of the week, restaurant traffic could pick up in the weekends before and after the Feb. 14 observance.

Retail grocers also tend to feature more steak cuts in association with Valentine’s Day, which, if they followed through this year, added to packer orders for the next few weeks.

In the longer term, though, packers may reduce chain speeds and pull back on how far out they are willing to forward book meat orders, Griffith said.

 

FEEDLOTS TO BENEFIT FROM LOWER PRICED FEEDERS

 

Feeder cattle prices have held relatively steady through January, but are showing signs of weakness, market sources said.

January saw a stronger run of feeders in Tennessee, Griffith said.  This likely was attributed to warm weather and fairly strong market prices.

In addition, many producers likely are moving calves because of short feed supplies, he said.  They had to start feeding hay sooner than usual this year, and may not have enough to make it through the winter without cutting back on use.

Market sources said similar situations are showing up in some wheat fields in the Plains.

Many Southeastern producers also may not have abundant pasture supplies this summer either, since it will take time to recover.

 

CASH CATTLE TRADE HIGHER

 

Average fed exchange auction prices Wednesday were $1.35 per cwt higher at $120.52, versus $119.17 a week earlier.

Cash cattle then traded lightly at $120 to $121.25 on a live basis, steady to up $1.25 to $2.  More trade was reported Thursday from $121 to $123, mostly $122, up $3.00.

Dressed-basis trades were reported at $193 to $194 per cwt, a gain of $7 to $8.

The USDA’s choice cutout Monday was up $1.35 per cwt at $191.77 per cwt, while select was up $0.19 at $186.83.  The choice/select spread widened to $4.94 from $3.78 with 70 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Friday was $133.46 per cwt, up $0.18.  This compares with Monday’s Jan settlement of $132.77, down $0.32.