Livestock Comments: Tough nut to crack
FED CATTLE: Fed cattle traded $8 to $9 lower than last week on a live basis. Prices on a live basis were mainly $110 to $112 while dressed prices were mostly $178 to $179. The 5-area weighted average prices thru Thursday were $111.08 live, down $8.36 compared to last week and $178.78 dressed, down $10.53 from a week ago. A year ago, prices were $124.43 live and $204.03 dressed.
Last week’s prices were wildly higher and this week’s prices are wildly lower. Actually, the wild erratic price movements have even been occurring from day to day. The unknowns of the coronavirus are enough to result in huge price swings in the market but those movements would still imply market efficiency. Where the inefficiency comes in is when government officials begin telling people what to do and how to act and the market is hit on the south end by a north bound train which provides whiplash. Technically, the market is still acting as efficiently as it can, but there are cattle producers being caught in the whiplash. There is no way of knowing what will happen between now and tomorrow in these markets.
BEEF CUTOUT: At midday Friday, the Choice cutout was $231.95 down $0.69 from Thursday and down $20.16 from last week. The Select cutout was $221.01 down $1.11 from Thursday and down $19.37 from a week ago. The Choice Select spread was $10.94 compared to $10.50 a week ago.
The steam engine that boxed beef prices were riding appears to be running out of steam as prices tumbled this week. More and more states are ordering residents to “stay at home” which means more meals are being prepared and consumed at home instead of away from home. One would think this change would influence meat consumption and meat disappearance. There may or may not be research to support the following statement, but one might get the inclination that there is more meat waste and thus more meat disappearance when consumers are eating away from home relative to eating at home meals. Again, this is not research based but rather what is thought to be logical reasoning. From that standpoint, the less people are doing, the less they will consume of most goods. Boxed beef prices are still extremely strong, but they are likely to decline further and the extent of the price decline will likely depend on how long the current situation persists. Things are likely to get worse before they get better.
OUTLOOK: Based on Tennessee weekly auction market price averages, slaughter cow and bull prices were $15 to $20 lower compared to a week ago. Due to limited marketings of feeder cattle from the previous week, it is difficult to develop trends, but there was a slightly stronger undertone to most classes of feeder cattle this week. The big surprise this week was in the slaughter cow and bull market where the bottom fell out of prices. The cull cow market was the one positive for many cattle producers in a world of depressed calf and feeder cattle prices. There are certainly people asking what is going on, and one only has to follow supply and demand to answer the question. The value of slaughter cows and bulls stems from the need for lean grinding beef that makes its way into the world of hamburgers and taco meat. A large portion of this meat ends up at fast food restaurants that generally see a lot of business. It is not business as usual at any of these restaurants as a large majority of states have issued “safer at home” or “stay at home” orders in recent weeks. Thus, business has slowed tremendously at many of these venues as consumers are not traveling the highways and many consumers are now taking a lunch break on the back porch of their home instead of the nearest “Burger Doodle.”
Similarly, the calf and feeder cattle markets continue to be a tough nut to crack. The spring flush of grass is strong in the Southeastern United States, but underperforming live cattle futures have feeder cattle futures floundering which means calf prices are going nowhere fast. Maybe even worse than the fact that prices are struggling is the extreme volatility in the futures market. In the past six weeks, the April feeder cattle futures contract has traded from $142 per hundredweight down to $108. It then traded back over $130 before going back under $110. Such volatility makes it difficult for anyone to physically want to trade cattle.