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Recaping the latest week’s market

published: January 8th 2021
by: Dr. Andrew Griffith
source: University of Tennessee

FED CATTLE: Fed cattle traded $2 higher compared to last week on a live basis. Prices on a live basis were primarily $109 to $112 while dressed prices were mainly $174 to $176.

The 5-area weighted average prices thru Wednesday were $111.15 live, up $2.12 compared to last week and $175.55 dressed, up $3.88 from a week ago. A year ago, prices were $125.00 live and $195.00 dressed.

Fed cattle prices have made some modest improvements the past couple of weeks despite the slower slaughter rates that are typical of Christmas week and the New Year holiday week. Leverage remains with packers as cattle supply is ample, and they have little reason to bid aggressively for cattle. Live cattle futures prices have started to provide optimism for late winter and spring cattle marketing with the April contract being just shy of the $120 price mark at one point. However, there is still a lot of uncertainty as it relates to beef demand as society continues to navigate through coronavirus. It would appear there should be more upside potential in the market relative totoday’s prices, but the market is not that easily predicted.

BEEF CUTOUT: At midday Thursday, the Choice cutout was $209.25 down $1.28 from Wednesday and up $1.20 from two weeks ago. The Select cutout was $196.87 down $2.99 from Wednesday and up $1.77 from two weeks ago. The Choice Select spread was $12.38 compared to $12.95 a week ago.

Based on weekly beef production data in the United States, beef production the last 52 weeks has totaled 26.55 billion pounds compared to 26.69 billion pounds from the same 52 weeks from the previous year. This means that 2020 beef production was only 0.5 percent lower than the previous year. Federally inspected cattle slaughter the first 50 weeks of 2020 was 2.9 percent or 926,000 head less than the same 50 weeks from the previous year. Steer slaughter was down nearly 459,000 head (-2.9%) com-pared to 2019, heifer slaughter down 354,000 head (-3.8%), dairy cow slaughter down 166,000 head (-5.4%), beef cow slaughter up nearly 74,000 head (2.4%) and bull slaughter down nearly 21,000 head (-4.0%). Several things can be concluded from this information: 1) slaughter facilities recovered well from the slow-downs caused by coronavirus, 2) producers took advantage of elevated slaughter cow prices, 3) heavier cattle were evident in the slaugh-ter mix, and 4) there are still plenty of cattle to go to slaughter.

OUTLOOK: Most of the weekly livestock auctions have been closed the past two weeks, and the markets that did have auctions were not reported. However, most markets will be back to normal operating hours the first full week of January, and Tennessee’s trusted market reporting team will be back in full force after a much-needed short break. Given that no local prices are available and that prices nationally are very limited, the focus will be on what has happened with feeder cattle futures the past couple of weeks. There has been significant talk about the March feeder cattle futures contract. Since bottoming out on October 19th just under $125 per hundredweight, the March contract price steadily increased and exceeded $143 on December 21st. However, the market has met considerable resistance the last week of December. Much of this resistance comes from higher corn prices in the cash and futures market as well as a struggle with live cattle cash and futures prices. The March contract price has declined nearly $3 this week and $4 off its peak. There is no way to be certain of the direction it will be going, but pricing a profit on feeders to be sold in the spring is not a bad decision. A similar set up for summer 2021 contracts is in place. The August feeder cattle contract made a $15 per hundredweight run the past two months and exceeded $151 before losing $2 this week. Has the top of the market been reached? Will prices of feeder cattle collapse? Will prices rebound if the they collapse? These are all good questions that no one can answer with 100 percent certainty. What can be answered with slightly more certainty is if the current futures price offers a profit on currently owned cattle or cattle that will be purchased in the near future. This is a time when cattle producers should be active marketers and use the available risk management tools at their disposal. This does not mean everything has to be hedged.

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