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Analyzing last week’s markets

published: August 24th 2022
by: Andrew Griffith
source: University of Tennessee

 

FED CATTLE: Fed cattle traded $2 to $3 higher compared to last week on a live basis. Prices on a live basis were mainly $142 to $143 in the South and $148 to $150 in the North while dressed prices were mainly $234.

The 5-area weighted average prices thru Thursday were $146.76 live, up $2.42 compared to last week and $234.03 dressed, up $4.08 from a week ago. A year ago, prices were $125.48 live and $201.07 dressed.

Nothing has changed from last week or the week before that. The anticipated future reduction in market ready cattle is the driver of the market, which means packers will compete for today’s cattle knowing they will be paying higher prices six months from now and even higher prices a year from now. One may figure that beef prices will increase while cattle prices are increasing, but there is no guarantee beef prices will increase at the same rate. There is no certainty in any part of the cattle market, but the closest thing to it is that finished cattle prices will increase. Will they reach record prices and exceed the $171 record set in November 2014? The answer is that there is a good possibility, but guessing the ceiling would be difficult.

BEEF CUTOUT: At midday Friday, the Choice cutout was $264.51 up $0.12 from Thursday and up $1.19 from a week ago. The Select cutout was $239.80 up $0.72 from Thursday and down $1.61 from last week. The Choice Select spread was $26.32 compared to $23.52 a week ago.

Based on the weekly federally inspected beef production values, beef production the first 33 weeks of 2022 totaled 17.57 billion pounds compared to 17.33 billion pounds the same 33 weeks in 2021, which is a 1.4 percent increase year over year. The increase in production in 2022 stems from increased cow slaughter and heifer slaughter. The slaughter of cows and heifers will persist at an increased rate and keep beef production escalated until the drought wanes or until the market runs out of animals. Once the industry moves back to herd expansion mode, beef production will likely decline tremendously. A reduction in production will result in higher boxed beef prices, reduction in beef exports, and an increase in beef imports. What happens with beef prices coupled with physical production constraints will drive how quickly the herd is rebuilt and how high and thus how low beef prices will eventually be three to five years down the road. The point is that beef demand is the driver and how supply is managed will determine prices.

OUTLOOK: Based on Tennessee weekly auction average prices, steer prices were steady $3 higher compared to last week while heifer prices were unevenly steady compared to a week ago. Slaughter cow prices were steady to $2 higher compared to a week ago while bull prices were steady compared to the previous week. Optimism blended with considerable uncertainty could lead to a huge pay day, or it could lead to considerable losses if the cattle market turns south. Ninety percent of the fundamentals in the cattle market are pointing toward higher calf and feeder cattle prices. These supporting fundamentals include increased cow slaughter, increased heifer slaughter, and strong international and domestic demand for beef. These three factors will likely result in in higher prices across the cattle complex. However, the timing of price movements is tough to gauge as drought continues to persist in many regions of the country, which continues to influence the number of females that will be in the breeding herd next year. Cattle prices have increased the past few months, and the expectation is that prices will continue to increase. However, the only producers who will be able to take advantage of the situation are those who can afford to keep cattle and feed cattle through the ongoing drought situation. Secondly, some producers who have the forage and feed resources may not find it all that profitable if many of the input prices remain elevated. Thus, who is willing to take the risk and bet on precipitation falling on their pasture and forage being produced? There are likely very few betting on this situation and more betting on things getting worse. This further exacerbates the problem when forage does become plentiful. There are risks worth taking, and there are risks worth avoiding. It is difficult to know which one is appropriate for an operations sitting behind a computer, but a person can do a little figuring to determine the course of action.

The August cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of August 1, 2022 totaled 11.22 million head, up 1.4% compared to a year ago, with the pre-report estimate average expecting an increase of 0.8%. July placements in feedlots totaled 1.77 million head, up 1.8% from a year ago with the pre-report estimate average expecting placements down 1.1%. July marketing’s totaled 1.83 million head down 3.9% from 2021 with pre-report estimates expecting a 3.4% decrease in marketings. Placements on feed by weight: under 700 pounds up 9.5%, 700 to 899 pounds down 3.4%, 900 pounds and over no change.

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