February 2, 2023
Fed cattle traded $1 lower compared to last week on a live basis. Prices on a live basis were mainly $153 to $155 while dressed prices were mainly $247 to $248.
The 5-area weighted average prices thru Thursday were $153.84 live, down $1.23 compared to last week and $247.72 dressed, down $0.29 from a week ago. A year ago, prices were $136.93 live and $218.00 dressed.
In a typical week, the percent of cattle traded on a live basis makes up 15 to 25 percent of total cattle marketed for slaughter while the remainder of cattle are marketed on a dressed basis. Considering the cattle traded on a live basis, the majority of those cattle and sometimes as high as 75 percent are traded through a negotiated method, which is what contributes to price transparency and competition. Alternatively, only 12 to 20 percent of cattle traded on a dressed basis are traded using negotiation as most of these cattle are priced based on formula trading. The reason this is important is because negotiated cattle trade has taken a tumble since the beginning of the year and may be a value worth keeping an eye on.
At midday Friday, the Choice cutout was $268.54 down $0.21 from Thursday and down $3.16 from a week ago. The Select cutout was $250.32 down $1.16 from Thursday and down $6.84 from last week. The Choice Select spread was $18.22 compared to $14.54 a week ago.
The big questions concerning beef prices revolves around the consumer. What can consumers afford to pay? What are consumers willing to pay? Will consumers continue to purchase beef with inflation and increasing interest rates? If the economy enters a recession by definition, how will this influence beef prices and thus cattle prices? The questions could continue, but they all include a similar theme.
The theme is if consumers can sustain paying higher beef prices at the retail level such that cattle prices increase to the expected lever given the expected reduction in supply. The same thoughts and ideas translate to the international market as well. However, there will be an uproar in 2023 and beyond as exports will decline and imports will increase relative to 2022. There is good reason for exports to decline since production will be lower if herd expansion begins. At the same time, imports should increase as the domestic production of lean grinding beef will be far below 2022 due to reduced cow slaughter and less 50-50 lean trimmings.
Based on Tennessee weekly auction price averages, steer prices were steady to $6 higher this week compared to last week while heifer prices were steady to $5 higher compared to the previous week. Slaughter cow prices were $2 to $4 higher than last week while slaughter bull prices were $2 to $4 higher compared to a week ago. The calf market has found firm footing as it heads towards the end of January.
The market is expected to continue firming moving through February and into March. The primary driver of how quickly prices increase and to what degree prices increase will be determined by how quickly certain regions experience spring green up. Many cattle producers in Tennessee are short on hay as are many other regions of the country. The inability to feed animals will keep a lid on prices. The lid may not be screwed on tight, but the lid will definitely still be sitting there. If there are signs of an early jump in forage this spring then prices will escalate earlier and move higher. If the opposite is true then calf prices will still increase but not at the same speed or reach the same level.
The one market that is certainly expected to be supported again in 2023 is the slaughter cow market. There are still a considerable quantity of cows moving through auctions and into the slaughter mix, but this will slow as calving season hits full stride, because cattle producers see the possibility of the calf value being strong. Thus, there will be a balance between feeding high priced feedstuffs to finish out the winter, marketing slaughter cows that may or may not be bred, and retaining animals that are expected to calve the next few months.
The failure to evaluate pregnancy status this fall could turn out to be an expensive failure for every open animal this spring that has been consuming a short hay supply and will fail to produce a higher valued calf. Maybe this is the swift kick in the rear end some of us need to make better management decisions.
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