Livestock Comments: Dr. Andrew Griffith

Since the beginning of May, the September feeder cattle futures price has increased about $25 per hundredweight or $200 per head while the contract is about $56 per hundred-weight higher than its first day of trading in October 2022.

Livestock Comments:  Dr. Andrew Griffith

FED CATTLE: Fed cattle traded steady on a live basis compared to last week with live prices mainly between $183 and $185 while dressed prices were mainly $291 to $292.  The 5-area weighted average prices thru Thursday were $184.54 live, up $0.28 compared to last week and $291.79 dressed, up $2.74 from a week ago. A year ago, prices were $144.55 live and $229.03 dressed.

There is black and white, true and false, and this world cannot decipher between fact and fiction. Similarly, a squirrel is not a dog and a dog has little ability to reason. He simply knows who feeds and cares for him and thus is loyal to his care taker. There are too many cattle. There are not enough cattle. We are paying too much for cattle. Cattle prices should be higher. Maybe all these statements are truth to some and false to others depending on the perspective. The one truth about markets, based on my experience, is everything that goes up must come down. A decline in prices is not likely in the near term, but the individual who can time the decline in prices could reap a nice monetary harvest.

BEEF CUTOUT: At midday Friday, the Choice cutout was $304.17 up $2.24 from Thursday and down $2.19 from a week ago. The Select cutout was $280.30 up $1.30 from Thursday and down $4.41 from last week. The Choice Select spread was $23.87 compared to $21.65 a week ago.

A value that rarely receives much attention in this weekly market commentary is the byproduct value. However, the value of byproducts is important from the cow-calf producer through the packer as it can account for a significant quantity of the total value of an animal. The steer byproduct value has been sitting in the mid $13 per hundredweight price range the past few months, which is higher than the summer values but slightly lower than year ago values. However, current prices are certainly more advantageous than the $8 and $9 per hundredweight prices experienced from 2018 through 2020. Thus, prices today contribute an additional $50 of value per head compared to 2018 through 2020, which directly translates to higher prices for finished cattle. The driver of the byproduct value tends to be the export market as many of these products have a higher value in the international market than the domestic market. As interest rates and inflation continue to negatively influence consumers across the world, there could be some softening in byproduct values.

OUTLOOK: Based on Tennessee weekly auction price averages, steers prices were $2 to $6 lower compared to last week while heifer prices were $4 to $8 lower compared to a week ago. Slaughter cow prices were $2 to $4 lower than last week’s weighted average price while bull prices were steady to $1 lower compared to the previous week. The stated trends are a drastic change from what cattle market participants have become accustomed to the past five months. Since the beginning of May, the September feeder cattle futures price has increased about $25 per hundredweight or $200 per head while the contract is about $56 per hundred-weight higher than its first day of trading in October 2022. It is not uncommon for feeder cattle prices to increase in leaps and bounds during the summer months, but a value increase of more than $400 per head in a one-year time frame is not common. 

The question is if such increases can persist, if prices will decrease, or will they hold steady? It would appear the price action this week in Tennessee has calf prices following a seasonal tendency as more cattle are making their way to the market. If there is follow through the next few weeks as it relates to seasonally softer calf prices then it may mean the market is beginning to meet resistance. Thus, it would be difficult to make an argument for higher feeder cattle prices as are being priced into the futures market at this time. For instance, the August 2024 feeder cattle contract is trading $26 per hundredweight higher than September 2023. Can the market stand another $200 per head of value on an 800 pound steer? If the feeder cattle index achieves the futures price level for August 2024, it would represent a price and value increase of 54 percent from August 2022. Maybe the better question is what is the probability of such a price increase occurring? Answer: much lower than a year ago.

The September cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of September 1, 2023 totaled 11.09 million head, down 2.2% compared to a year ago, with the pre-report estimate average expecting a 2.4% decline. August placements in feedlots totaled 2.00 million head, down 5.1% from a year ago with the pre-report estimate average expecting placements down 6.4%. August marketing’s totaled 1.88 million head down 6.0% from 2022 with pre-report estimates expecting a 5.6% decrease in marketings. Placements on feed by weight: under 700 pounds down 3.3%, 700 to 899 pounds down 5.2%, 900 pounds and over down 8.2%.