Livestock Comments:   $7 gap between cash and futures price

FED CATTLE: Fed cattle traded steady to slightly softer 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 $109.23 live, down $0.29 compared to last week and $172.59 dressed, down $0.47 from a week ago. A year ago, prices were $124.28 live and $198.86 dressed.

Packers did not throw any bones to cattle feeders this week as finished cattle prices did well to hold their ground from last week. Packers have been able to capitalize on higher beef prices, and they are not being forced to pass any of those margin gains down the line. The interesting part of this equation is that February live cattle futures are trading over $116 which means the $7 gap between today’s cash price and the futures price has to be closed at some point. It can either happen by cash prices increasing, futures prices decreasing, or a mixture of both. The April live cattle contract is over $122 which provides a lot of optimism for cattle feeders moving forward. One would have to imagine cattle feeders are laying off some risk at this level.

BEEF CUTOUT: At midday Friday, the Choice cutout was $223.05 up $1.85 from Thursday and up $9.43 from a week ago. The Select cutout was $213.52 up $3.24 from Thursday and up $10.37 from last week. The Choice Select spread was $9.53 compared to $10.47 a week ago.

Boxed beef prices are off to a rapid start to begin the new year. The Choice and Select boxes started the year off a little slow, but the Choice price has advanced $14 per hundredweight while the Select price has increased $16 per hundredweight since the end of 2020. The driver behind higher prices does not appear to be supply driven, because beef production the first couple weeks of the year was greater than the same weeks one year ago. The thought then goes to demand driving the price. Looking at monthly beef trade data, beef and veal exports in November were 13.2 percent higher than the previous year and totaled 277 million pounds. Monthly data is not available for December, but the weekly beef muscle cut export data shows an increase of 23.3 percent for December and this has likely carried over to 2021. It appears the appetite for beef is strong, and that same strength is likely found domestically as well. Additionally, there have been news reports that China may become a bigger player in U.S. markets now that the new presidential administration has taken office.

OUTLOOK: Steer and heifer prices were unevenly steady compared to last week based on daily Tennessee market reports. Similarly, slaughter cow prices were steady while slaughter bull prices were steady to $2 lower compared to a week ago. Feeder cattle receipts were fairly strong across the markets that were reported this week. Strong marketing by cattle producers was likely due to the drier conditions that persisted this week, which allowed trucks and trailers to get into pastures. Another reason many producers are moving cattle in the near term is to make room for the next calf crop that is already hitting the ground or that will be hitting the ground the next two to three months. Demand for calves to put on grass has not taken off yet, but that is because spring green up is still eight to ten weeks away. However, demand for light-weight cattle will begin to pick up in the coming weeks as several buyers will be trying to buy some cattle before the grass cattle run reaches warp speed. This expected increase in demand will slowly begin to support calf prices, which should be beneficial to producers who are in a situation where they have to sell calves in the near term. Feeder cattle futures are also providing some price risk management opportunities for buyers of those cattle. For example, the August feeder cattle contract price has shown a $5 per hundredweight increase this week and has exceeded the contract high. This does not mean producers should lock in the price and forget about it, but producers should be considering their alternatives to secure a price in some form or fashion. The stronger futures market may or may not hold, but it should support cash prices of calves and feeder cattle in the near term. Switching to the slaughter cow market. Slaughter cow prices should begin to gain some steam in February and March. This may be an appropriate time to market animals that are in a body condition score of five or higher.

The January cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of January 1, 2020 totaled 11.97 million head, no change compared to a year ago, with the pre-report estimate average expecting a decline of 0.5%. December placements in feedlots totaled 1.84 million head, up 0.7% from a year ago with the pre-report estimate average expecting placements down 2.9%. December marketing’s totaled 1.85 million head up 1.0% from 2019 with pre-report estimates expecting a 0.6% increase in marketings. Placements on feed by weight: under 700 pounds down 2.7%, 700 to 899 pounds up 4.8%, 900 pounds and over up 2.5%.