Livestock Comments: Dr. Andrew Griffith

FED CATTLE: Fed cattle traded $1 to $2 higher on a live basis compared to last week. Prices in the South were $218 to $221 while prices in the North were mainly $355 to $357.   The 5-area weighted average prices through Thursday were $224.49 live, up $3.69 compared to a week ago and $356.07 dressed, up $6.74 from last week. A year ago, prices were $185.25 live and $295.00 dressed.

Cattle feeders have continued to maintain leverage over packers, and packers have been willing to pay the higher prices as long as wholesale beef prices continue to increase. If wholesale beef prices were to stall then packers may try to pull back on the price string, which may lead to more late week trade that became commonplace during March and April. As the market moves through May, finished cattle prices should be supported given the expectation that beef prices should be supported. On the other side of the coin, the finished cattle market could have ice cold water thrown on it during the doldrums of summer, but market participants can just wait to see what happens.

BEEF CUTOUT: At midday Friday, the Choice cutout was $346.53 down $1.36 from Thursday and up $3.59 from a week ago. The Select cutout was $332.52 down $0.68 from Thursday and up $6.88 from a week ago. The Choice-Select spread was $14.01 compared to $17.30 a week ago.

Wholesale beef prices have continued to push higher no matter the circumstances. This statement holds for Prime, Choice, and Select beef. The clear signal being sent from the consumer to the cattle producer is that they demand high quality beef in the form of Choice or Prime. More specifically, the consumer wants beef that grades upper two-thirds Choice or higher, and the cattle industry has been answering the call as the percentage of beef grading Choice and Prime has continued to increase while the percentage of beef grading Select has continued to decline.

The shift to higher grading beef is one reason we have not seen a large widening of the Choice-Select spread, because there is simply not as much Select beef available. We should begin to see a little widening in the Choice-Select spread as grilling season will help push Choice prices higher relative to Select, but the market will probably not see it widen to historical levels simply due to the relative quantity of each available. There may be some shifts in the beef market the next few years.

OUTLOOK: Based on Tennessee weekly auction reports, steer prices this week were $5 to $10 higher compared to last week while heifer prices were $5 to $8 higher than the previous week. Slaughter cow prices were $2 to $5 higher compared to a week ago while slaughter bull prices were $2 to $3 higher compared to last week.

Local calf and feeder cattle prices followed feeder cattle futures higher this week, but cash prices locally made larger gains than the futures market. It would appear there is still a strong demand for lightweight freshly weaned calves to place on grass. This is likely because many grass cattle producers have not been able to secure their normal quantity of cattle this spring.

Moving from the cash market to feeder cattle futures, the futures market has been able to overcome the psychological barrier of $300 per hundredweight as both the August and September feeder cattle futures contracts were able to eclipse that barrier on Thursday. This was seen as a large resistance point and it proved to be a tough barrier.

Now that the resistance point has been exceeded, the question will be if the market can hold its position and push even higher. Failure to maintain a value in excess of $300 will be considered a sign of weakness in the market to some market analysts, but what will be the most telling will be the CME feeder cattle index and its ability to push through $300.

There have been days in which the single-day totals used to calculate the seven-day weighted rolling average CME index have exceeded $300 per hundredweight, but there is a need for consistency of the rolling average meeting and exceeding this value. The market will be entering a time period when feeder cattle are supported through the summer, because the seasonal trend is for yearling cattle prices to peak from the middle of July through the middle of September. Thus, this is the best opportunity for the market to show out and demonstrate just how strong it can be given the supply and demand dynamics of the market.