|
Beef Production Expected To Remain Strong For Next Several Months
DR. ANDREW P. GRIFFITH
KNOXVILLE, TENN.
Fed cattle traded $2 lower a live basis compared to last week. Prices on a live basis were mainly $120 while prices on a dressed basis were mainly $192.
The 5-area weighted average prices thru Thursday were $120.07 live, down $1.58 from last week and $191.92 dressed, down $2.42 from a week ago. A year ago prices were $118.44 live and $186.00 dressed.
Is it the large number of cattle on feed, softness in the beef market, or something else causing finished cattle prices to soften? “How many licks does it take to get to the Tootsie Roll center of a Tootsie Pop?” The answer to these two questions may be the same. “The world may never know.” However, the logical answer given current fundamentals is all of the above. There are a large number of cattle on feed and beef production remains strong. The expectation for beef production to remain strong the next several months will continue to put pressure on finished cattle prices. Some of this pressure may be relieved once spring arrives, but it is difficult to tell how the winter will impact finished weights and how many cattle will be available to go on feed in the near term.
BEEF CUTOUT: At midday Friday, the Choice cutout was $208.67 down $0.40 from Thursday and down $0.59 from last Friday. The Select cutout was $202.28 down $0.67 from Thursday and down $0.09 from last Friday. The Choice Select spread was $6.39 compared to $6.91 a week ago.
Following two weeks of post-holiday gains, beef cutout prices managed to hold serve this week. From a packer and industry standpoint, the failure to push prices higher was a disappointment. However, the ability to hold prices steady should be considered a win given beef production totals and weather events negatively impacting much of the eastern coast and the Northeast regions of the United States. Anytime big population centers are slowed by winter weather, pressure is put on the beef industry. When a weather event hits simultaneously with strong beef production, further downward pressure is asserted. There will continue to be struggles in January and February to push beef prices higher as much of the focus will be on end meats. This focus will result in the Choice Select spread continuing to narrow. One bright spot has been the export market. Export data for November 2017 was recently released and it indicated increasing beef exports once again. Every month in 2017 out-paced the same month for 2016. A strong export market will be necessary to support beef prices.
OUTLOOK: Auction markets were back to marketing cattle this week across the state. It is difficult to develop trends relative to last week due to the small number of cattle reported a week ago. Based on Tennessee weekly auction market averages, 525 to 675 pound steers averaged $800 to $940 per head which is not much different from the first and last full sale weeks in December. Where the difference arises is in load lot pricing. Several loads of feeder cattle were marketed in Tennessee this week. Steers weighing between 825 and 975 pounds brought $1,075 to $1,275 per head. Prices received this week were $150 to $200 per head lower than those received in December. Feeder cattle basis was dis-cussed extensively in this column one week ago. The discussion focused on the strength in feeder cattle basis when comparing the feeder cattle index and the futures price. Tennessee cattle producers had enjoyed a rather strong basis on load lots of feeder cattle for several months, but the tide turned based on loads marketed this week. The question most will be asking is if the basis will again strengthen or if it will remain relatively weak as was present in the most recent marketings. It is difficult to predict, but it seems the current situation is going to be short-lived. Feedlots have plenty of cattle, and they do not necessarily need any extra at this time. However, they are more than willing to purchase undervalued cattle that would appear profitable moving into the spring and summer. As cattle make their way through the system the next couple of months, cattle feeders may find out there are not as many animals readily available to restock the pens. Thus, there could be some price support moving into the spring and summer months. Being wrong here could be an expensive education, but being correct could result in positive returns. Time will tell as the market will keep an eye on placements in the next few cattle on feed reports. The market will see the share of cattle that hit the pens early due to poor grazing in the Southern Plains.
ASK ANDREW, TN THINK TANK: Questions concerning cow-calf operation profitability are frequent and this week was no different. A question was asked concerning some of the key aspects to focus on in turning an unprofitable cow-calf operation into a profitable operation. The answer to this question is largely situation specific, but there are a few things every producer should keep an eye on and make management decisions to improve. One key is reproductive efficiencies. The weaning rate which is the number of calves weaned and marketed relative to the number of cows exposed to a bull is important. Producers should shoot for 90 percent but 85 percent may be more realistic. Secondly, a defined or controlled calving season will improve profitability. Year round calving makes management difficult and generally increases feed costs. Anything under 90 days for a calving season is desirable with 60 days being even better. Lastly, reducing costs associated with mechanically harvested feeds. Reducing the stocking rate can sometimes increase profitability if it reduces hay usage.
Please send questions and comments to agriff14@utk.edu or send a letter to Andrew P. Griffith, University of Tennessee, 314B Morgan Hall, 2621 Morgan Circle, Knoxville, TN 37996. ∆
DR. ANDREW P. GRIFFITH: Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee
|
|