Cattle feeders and packers have been too busy this week to trade cattle until Friday afternoon. This is said as a joke in that both parties have toyed back and forth all week, but the parties struggled to come to terms on prices this week. This is not a new occurrence as slow trade has been common due to packers losing money and cattle feeders knowing they hold the cards as it relates to supply moving to slaughter. Based on the first few thousand head that traded this week, it would appear cattle feeders are winning the battle with prices increasing significantly week-over-week. There does appear to be a premium on the norther cattle, but this should be expected and will likely widen moving towards grilling season.
BEEF CUTOUT
At midday Friday, the Choice cutout was $317.87 down $1.82 from Thursday and up $3.56 from a week ago. The Select cutout was $306.32 down $1.15 from Thursday and up $0.23 from a week ago. The Choice Select spread was $11.55 compared to $8.22 a week ago.
The story here is the narrow margin between finished cattle prices and Choice boxed beef prices. The wholesale price of Choice beef is higher than the price of a dressed steer or heifer, but there is no way packers are covering the cost of fabricating carcasses with such a narrow margin. When one factors in the quantity of select grade carcasses, it would seem losses are guaranteed on the simple buy and sell of product. Prime carcasses certainly have the ability to offset losses from cattle grading Select, but the environment is set up for major losses at the packing level. The reason this seems important given the opening of a few new packing facilities the past couple of years and the plans for any others is that these new facilities will find it difficult to generate positive cash flow. This means more investment dollars must be infused into the system, sell of the facility, or closure. There may be some other alternatives, but the point is that it will be difficult for these operations from now through the next few years. Time will reveal the final result.
OUTLOOK
Based on Tennessee weekly auction reports, steer prices this week were $6 to $14 higher compared to last week while heifer prices were $5 to $9 higher than the previous week. Slaughter cow prices were unevenly steady compared to a week ago with slaughter bull prices being unevenly steady also. Calf prices have continued to climb the ladder as grass fever has hit spring cattle buyers. Grass fever may end up being more of a pandemic than coronavirus was five years ago if prices fail to maintain their lofty levels the next several months. On the other end of the spectrum, the tremendous run in cattle prices during grass fever could be similar to the few people that struck gold during the gold rush. One never knows on the front end what may be the final outcome, but it can range from detrimental to hallelujah! Given that 550-pound steers in Tennessee are averaging well over $1,800 per head, cattle prices will have to stay elevated or maybe even increase for yearling cattle for producers to achieve what could be considered an acceptable return. The one thing known for sure when purchasing animals for this price is there is a much higher investment in calves this year than there was one year ago. In fact, there the investment this year is about $300 more per head compared to a year ago, which is a 20 percent increase. There is never a wrong time to continue reminding producers about the strength in the slaughter cow market. Slaughter cow and bull prices remain strong and will see further strengthening as the market moves toward May and June. The slaughter cow and bull market should not come under much pressure if any at all the next several months as lean grinding beef will be at a premium. The domestic market will continue to import lean grinding beef to supplement domestic production, but domestic prices should be supported. Market participants are aware of the high price environment they are operating in, but they need to manage risk along the way to protect against any turns in the market.
Source : osu.edu