Price Challenges Loom Over Cattle Markets

The cattle market is fraught with risk, posing challenges to producers as well as opportunities for profit, but challenges seem to overshadow opportunities in the current market.

Agricultural Extension Economist Andrew Griffith of the University of Tennessee writes in the latest “Tennessee Market Highlights” that another challenging time is approaching as it relates to markets and cattle prices.

The 2018 feeder cattle market started off on a strong note as feeder cattle futures made $10 to $12 gains on most contracts, and local cash prices rose $10 on feeder cattle and as much as $15 per cwt on calves, Griffith said.  This largely was because of strong finished cattle prices, which meant cattle feeders had more money to spend on cattle to refill the feedlot pens.

A look at the USDA’s Agricultural Marketing Service numbers shows that weekly average prices for 700- to 800-pound steers in the Southern Plains has held around $150 per cwt so far this year, right between last year and the 2012-2016 average.

Just for comparison, the latest week of data shows an average price for those 700- to 800-pound feeder steers of $148.74 per cwt, up $18.06, or 13.8%, from $130.68 a year earlier but down $18.88, or 11.3%, from the previous five-year average of $167.62.

If prices follow the 2012-2016 average, they will continue to move sideways until late April where they will strengthen into the late-summer high as pasture availability keeps them off the market until then.

However, if prices follow last year’s trend, they will push higher from now into late June where greater availability puts a lid on prices.

Griffith said that many feedlot pens may be occupied by calves that were placed earlier than intended over the last few months because of a lack of wheat pasture.  Thus, the latest weakness seen in the feeder cattle and calf markets “could be a factor of both reduced finished cattle prices and reduced pen space at some feedlots.”

 

WEATHER COULD PLAY A ROLE

 

The fly in the ointment to thinking that feeder cattle prices will follow last year could be the weather.  Already, large parts of the Central and Southern Plains are experiencing drought conditions.  Further spread of these conditions could send feeders to the feedlots earlier than many producers would like.

Such increases in feeder cattle supply likely would have a pressuring effect on prices.

And, in case the drought conditions spread to the Midwest, corn production could be negatively affected as well, sending feed prices higher and undercutting feeder cattle prices as feedlot profitability prospects dim.

Beef demand likely will be a wild card in the mix, an analyst said.  If it continues strong or even accelerates, then cattle and calf prices could remain strong as well, but if supply outstrips even strong demand then softness can’t be far behind.

 

CATTLE, BEEF RECAP

 

Fed cattle sold Wednesday on the Livestock Exchange Video Auction at a steady $126 per cwt.

Scattered cash sales were reported at $126 per cwt on a live basis, steady to $1 lower than last week.  No dressed-basis trading was reported, although last week’s action was steady at $204 to $205.

The USDA’s choice cutout Wednesday was up $0.22 per cwt at $223.57, while select was unchanged at $215.20.  The choice/select spread widened to $8.37 from $8.15 with 106 loads of fabricated product sold into the spot market.

The CME Feeder Cattle index for the seven days ended Tuesday, was $144.96 per cwt, down $0.29.  This compares with Wednesday’s Mar settlement of $143.77, down $0.52.