By Dr. Andrew Griffith
Fed cattle traded $3 lower compared to last week on a live basis. Prices on a live basis were primarily $108 to $110 while dressed prices were mainly $172 to $174.
The 5-area weighted average prices thru Thursday were $109.52 live, down $1.96 compared to last week and $173.06 dressed, down $2.96 from a week ago. A year ago, prices were $124.00 live and $199.07 dressed.
Fed cattle prices took a step back this week while boxed beef prices were finding some footing. It has been clear for nearly ten months that cattle feeders have little to no leverage as packers have willed the market in the direction they desire. The question on many market participants’ minds is if the tide will ever shift such that cattle feeders can will their way to higher fed cattle prices. There may be many ways for this to happen, but the most direct would be for fewer cattle in the pipeline. This may be the reality in a few months if the beef cow herd shrank and fewer heifers were retained in 2020. This is not something that will fix itself overnight, but some of the preliminary information points that direction.
BEEF CUTOUT: At midday Friday, the Choice cutout was $213.62 up $0.25 from Thursday and up $7.07 from a week ago. The Select cutout was $203.15 up $2.08 from Thursday and up $6.23 from last week. The Choice Select spread was $10.47 compared to $9.63 a week ago.
Wholesale beef prices received a nice bump this week for both Choice and Select grade beef. The strength in the market is being led by the rib and loin primal, which are both more than $11 per hundredweight higher than last week. The chuck and short plate are also providing some support for the higher price as the chuck is nearly $7 higher than last week and short plate values have increased more than $5. The round primal value is nearly $2 higher than last week, but that small increase is not much of a driver for higher prices. The brisket and flank primal cuts are essentially unchanged from last week. The strength in the beef market this time of year generally comes from the chuck and the round, but middle meats continue to provide the support in the current market. There is no way to know for certain what is driving middle meats, but it could be related to the pandemic. Discretionary spending is still not back to normal with many consumers being forced to stay near home. Thus, some consumers may be using the extra dollars to eat higher on the hog or the beef in this case.
OUTLOOK: Calf prices appeared to be slightly stronger this week compared to last week while feeder cattle prices were softer. Slaughter cow and bull prices were also softer compared to a week ago. Since Christmas, January feeder cattle futures prices have declined $8 per hundred-weight. Similarly, March feeder cattle futures contract prices are approximately $9 per hundredweight lower while the Au-gust contract has only lost $5 over the same time period. The feeder cattle market has come under serious pressure the past few weeks despite deferred live cattle futures gaining traction and trading higher. A simple analysis of the situation would be that higher corn prices are the culprit for lower feeder cattle prices given the positive movement in deferred live cattle futures. Corn futures prices have increased more than $1 per bushel since the middle of December. If it is assumed that an animal will consume 50 bushels of corn while in the feedlot then the $1 in-crease in price means it will cost $50 more in feed costs. That increase would essentially mean that a cattle feeder has to pay $6 per hundredweight less for an 800 pound steer if everything else remains the same. However, this simple analysis has not considered corn basis, which appears to be strengthening. Strengthening basis further in-creases the cost to feed cattle. Feed cost is not the entire story. Looking at expected feedlot profitability at the most basic level for cattle being placed in January, there appears to be about $50 per head profit in cattle feeding. However, this calculation omits costs associated with mortality and morbidity as well as a few other costs. The point of this is that cattle feeding margins are tight and probably even negative for some feedlots. The feeder cattle market has a lot going against it at this point, but not all optimism has disappeared. Producers should keep their eyes on the market and evaluate potential opportunities.
Source : osu.edu