Tennessee Market Highlights

Transcription

1 Tennessee Market Highlights February 3, 2017 Number: 5 Trends for the Week Compared to a Week Ago Slaughter Cows $2 to $3 higher Slaughter Bulls $1 to $2 higher Feeder Steers Unevenly steady Feeder Heifers Unevenly steady Feeder Cattle Index Wednesday s index: Fed Cattle The 5-area live price of $ is down $2.64. The dressed price is down $3.80 at $ Corn March closed at $3.65 a bushel, up 3 cents since last Friday. Soybeans March closed at $10.27 a bushel, down 22 cents since last Friday. Wheat March closed at $4.30 a bushel, up 10 cents since last Friday. Cotton March closed at cents per lb, up 1.56 cents since last Friday. Livestock Comments by Dr. Andrew P. Griffith FED CATTLE: Fed cattle traded $3 lower compared to last week on live basis. Prices on a live basis were mainly $118 to $119 while dressed prices were mainly $189 to $190. The 5-area weighted average prices thru Thursday were $ live, down $2.64 from last week and $ dressed, down $3.80 from a week ago. A year ago prices were $ live and $ dressed. Finished cattle may be experiencing softer market prices, but cattle feeders continue to be profitable on cattle being marketed at this week s price level. There is little reason to have a bullish outlook on finished cattle prices at this time, but there is not much information to support a bearish market either. Finished cattle will likely trade in a fairly narrow range the next several weeks before finding some support leading up to summer grilling holidays. The futures market is pricing in huge discounts on live cattle through the summer and into early winter. Cattle feeders should remain patient. It appears the futures market has severely undervalued animals in the third and fourth quarter of 2017 which means there is no reason to settle for the huge discount. BEEF CUTOUT: At midday Friday, the Choice cutout was $ up $0.40 from Thursday and up $0.46 from last Friday. The Select cutout was $ down $0.10 from Thursday and up $0.87 from last Friday. The Choice Select spread was $3.40 compared to $3.81 a week ago. Modest gains in beef cutout prices this week have done little to help improve packer margins, but most packers are probably glad to see the steady price decline come to a halt. February beef demand is generally weak compared to most other months of the year, but beef industry participants are hopeful retailers, restaurants, and food service providers increase promotional activity similar to one year ago. The likelihood of wholesale beef prices receiving much of a boost the next several weeks is slim. Thus, if finished cattle prices remain at current levels, packers may be forced to slow chain speeds in order to manipulate the short-term supply. Reducing short-term supply can bolster prices in the near term, but it generally results in negative price impacts a few months down the road. Packers raked in the profits during 2016, but profits in 2017 are likely to be much lower as beef production continues to increase. Pork and poultry production are on the rise, but relatively strong pork prices are providing some support to competing meat protein markets. OUTLOOK: Based on Tennessee weekly auction market data, calf and feeder cattle prices were unevenly steady this week compared to last week while slaughter cow and bull prices increased about $2 per hundredweight. Calf and feeder cattle markets in the country were likely hurt by the feeder cattle futures price decline. Feeder cattle futures began softening last week and witnessed further declines Monday thru Wednesday of this week. In total, March feeder cattle futures lost more than $9 per hundredweight in eight days of trading. However, Thursday saw positive price movement which brings back some optimism for many in the industry. The January 1, 2017 cattle inventory report was released January 31st and it appeared to have little impact on the futures market. All cattle and calves inventory increased 1.8 percent from a year ago to 93.6 million head. Similarly, beef cow inventory increased 3.5 percent to total 31.2 million head while beef heifers for replacement increased 1.3 percent nationally. Increases in the beef cow herd and heifers held for replacement will continue to increase the flow of cattle into the feedlot the next few years which will depress prices further. With increasing cattle numbers and decreasing prices, who has a competitive advantage to be successful and thrive in the (Continued on page 2)

2 Livestock Comments by Dr. Andrew Griffith (Continued from page 1) cattle business? The answer is the person with the lowest cost of production. The three largest cost categories in most operations are feed (feed and fertilizer included), depreciation, and labor. Thus, producers with low feed costs, fewer depreciable assets, and with relatively low labor costs will survive the downturn in prices. This means producers in the Southeast have a few competitive advantages. The primary competitive advantage is the ability to have low feed costs. Many Southeastern U.S. producers do not have low feed costs because of their reliance on feeding hay 120 to 150 days a year. However, the Southeast produces a lot of forage which is inexpensive when harvested by cattle. With less reliance on mechanically harvested feedstuffs, producers can reduce the quantity of depreciable assets (maybe two tractors instead of four). Similarly, less hay production and shorter winter feeding periods reduce labor needs and costs. These are just a few thoughts to ponder while cattle prices decline further the next couple of years. FRIDAY S FUTURES MARKET CLOSING PRICES: Friday s closing prices were as follows: Live/fed cattle February $ ; April $ ; June $ ; Feeder cattle March $ ; April $ ; May $ ; August $ ; March corn closed at $3.65 down $0.02 from Thursday. ASK ANDREW, TN THINK TANK: I was invited to speak at a conference held at Virginia Tech last Saturday. During my time there, a question was asked concerning why the U.S. imports beef while we are over producing and beef and cattle prices decline. This question and comment bring many thoughts to mind, but I will keep the response brief. First, what is over producing? I do not think the domestic beef market is over producing. We produce a beef product that is differentiated from all other global beef products. Beef produced in Canada is the only comparable beef because they have a similar system. Second, what type of products do we import into the U.S.? Most beef imports are in the lean grinding beef category which pairs well with the fatty grinding meat we produce. Trade may not be the life blood of the beef industry, but it is pretty close and that includes imports. The domestic industry could produce lean beef, but several producers would have to change management and grazing practices to meet the demand. The question then becomes, which method produces more value? 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 Milk Futures Thursday February 2, 2017 Month Class III Close Class IV Close Feb Mar Apr May Jun Average Daily Slaughter Cattle Hogs Number of head This week (4 days) 112, ,000 Last week (4 days) 112, ,250 Year ago (4 days) 98, ,750 This week as percentage of Week ago (%) 100% 102% Year ago (%) 114% 114% USDA Box Beef Cutout Value Choice lbs Select lbs $/cwt - Thursday Last Week Year ago Change from week ago Change from year ago

3 Crop Comments by Dr. Aaron Smith Overview Corn, cotton, and wheat were up; soybeans were down for the week. This week we entered the critical price discovery period for crop insurance for corn, soybeans, and cotton in Tennessee. The projected (spring) price will be determined from February 1 to 28 using the harvest futures contract for each commodity. As of Friday, February 3, the 2017 projected price was $3.94/bu for corn, $10.13/bu for soybeans and $0.73/lb for cotton. Prices could change substantially from now until the end of February, however, currently, all three commodities would have higher projected prices than last year. For 2016, corn had a projected price of $3.86/bu (harvest price $3.49/bu); soybeans had a projected price of $8.85/bu (harvest price $9.75/bu); and cotton had a projected price of $0.60/lb (harvest price $0.69/lb). In 2016, cotton, corn, and soybean prices decreased through the price discovery period. Cotton prices decreased from a high of $0.63/lb on February 3 to 0.56/lb on February 29 (down $0.07). Corn prices decreased from a high of $3.94 on February 2 to a low of $3.76 on February 29 (down $0.18). Soybean prices decreased from a high of $8.97 on February 2 to a low of $8.74 on February 29 (down $0.23). The final projected price will be used to determine the revenue guarantee for producers purchasing revenue protection (RP, RP- HPE) crop insurance prior to planting this year s crop. For example, if the final projected price is $10.13/bu and a producer has an APH of 40 bu/acre and buys crop insurance coverage at 80% they would have a revenue guarantee of $ ($10.13 x 40 x 0.80). If the actual revenue from the crop fell below $ the producer would receive a payment from crop insurance for the difference. This is a simplified example used to illustrate the importance of crop insurance as a risk management tool for row crop producers. Corn March 2017 corn futures closed at $3.65 up 3 cents since last Friday. For the week, March 2017 corn futures traded between $3.55 and $3.69. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis and Lower-middle Tennessee and weakened at Northwest Barge Points, Upper-middle, and Northwest Tennessee. Overall, basis for the week ranged from 6 under to 40 over the March futures contract with an average of 13 over at the end of the week. Corn net sales reported by exporters from January were above expectations with net sales of 45 million bushels for the 2016/17 marketing year and 0.6 million bushels for the 2017/18 marketing year. Exports for the same time period were down from last week at 30.1 million bushels. Corn export sales and commitments were 71% of the USDA estimated total annual exports for the 2016/17 marketing year (September 1 to August 31) compared to a 5-year average of 66%. Ethanol production for the week ending January 27 was million barrels per day up 10,000 from last week. Ethanol stocks were million barrels, up 142,000 barrels. Mar/May and Mar/Dec future spreads were 7 and 27 cents, respectively. May 2017 corn futures closed at $3.72 up 3 cents since last Friday. In Tennessee, September 2017 cash forward contracts averaged $3.77 with a range of $3.59 to $4.06. December 2017 corn futures closed at $3.92 up 3 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2017 Put Option costing 35 cents establishing a $3.65 futures floor. 3 (Continued on page 4)

4 Crop Comments by Dr. Aaron Smith Soybeans March 2017 soybean futures closed at $10.27 down 22 cents since last Friday. For the week, March 2017 soybean futures traded between $10.17 and $ Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, and Northwest Tennessee and weakened at Upper-middle and Lower-middle Tennessee. Basis ranged from 38 under to 30 over the March futures contract at elevators and barge points. Average basis at the end of the week was 9 under the March futures contract. Net sales reported by exporters were above expectations with net sales of 22.9 million bushels for the 2016/17 marketing year and 12.9 million bushels for the 2017/18 marketing year. Exports for the same period were up from last week at 46.0 million bushels. Soybean export sales and commitments were 90% of the USDA estimated total annual exports for the 2016/17 marketing year (September 1 to August 31), compared to a 5-year average of 86%. March soybean-to-corn futures price ratio was 2.81 at the end of the week. Mar/May and Mar/Nov future spreads were 10 cents and -18 cents, respectively. May 2017 soybean futures closed at $10.37 down 21 cents since last Friday. In Tennessee, October / November 2017 cash contracts average $10.05 with a range of $9.81 to $ November/December 2017 soybean-to-corn price ratio was 2.57 at the end of the week. November 2017 soybean futures closed at $10.09 down 16 cents since last Friday. Downside price protection could be achieved by purchasing a $10.20 November 2017 Put Option which would cost 69 cents and set a $9.51 futures floor. Cotton March 2017 cotton futures closed at up 1.56 cents since last Friday. For the week, March 2017 cotton futures traded between and 77.4 cents. Delta upland cotton spot price quotes for February 2 were cents/lb ( ) and cents/lb ( ). Adjusted world price (AWP) increased 1.3 cents to cents per pound. Net sales reported by exporters were down from last week with net sales of 328,700 bales for the 2016/17 marketing year and 89,000 bales for the 2017/18 marketing year. Exports for the same period were up from last week at 354,400 bales. Upland cotton export sales were 84% of the USDA estimated total annual exports for the 2016/17 marketing year (August 1 to July 31), compared to a 5-year average of 84%. May 2017 cotton futures closed at up 1.68 cents since last Friday. Mar/May and Mar/Dec cotton futures spreads were 0.66 cents and cents, respectively. December 2017 cotton futures closed at up 2.2 cents since last Friday. Downside price protection could be obtained by purchasing a 74 cent December 2017 Put Option costing 4.89 cents establishing a cent futures floor. 4 (Continued on page 5)

5 Crop Comments by Dr. Aaron Smith Wheat March 2017 wheat futures closed at $4.30 up 10 cents since last Friday. March 2017 wheat futures traded between $4.12 and $4.37 this week. March wheat-to-corn price ratio was 1.18.Wheat net sales reported by exporters were above expectations with net sales of 16.6 million bushels for the 2016/17 marketing year and 2.2 million bushels for the 2017/18 marketing year. Exports for the week were up from last week at 11.9 million bushels. Wheat export sales were 87% of the USDA estimated total annual exports for the 2016/17 marketing year (June 1 to May 31), compared to a 5-year average of 84%. In Memphis, old crop cash wheat ranged from $4.22 to $4.43. Mar/May and Mar/Jul future spreads were 13 cents and 26 cents, respectively. May 2017 wheat futures closed at $4.43 up 9 cents since last Friday. May 2017 wheat-to-corn price ratio was In Tennessee, June/July 2017 cash wheat ranged from $4.17 to $4.85. July 2017 wheat futures closed at $4.56 up 7 cents since last Friday. Downside price protection could be obtained by purchasing a $4.60 July 2017 Put Option costing 29 cents establishing a $4.31 futures floor. Additional Information: If you would like further information or clarification on topics discussed in the crop comments section or would like to be added to our free list please contact me at aaron.smith@utk.edu. 5

6 Futures Settlement Prices: Crops & Livestock Friday, January 27, 2017 Thursday, February 2, 2017 Commodity Contract Month Friday Monday Tuesday Wednesday Thursday Soybeans Mar ($/bushel) May Jul Aug Sep Nov Corn Mar ($/bushel) May Jul Sep Dec Mar Wheat Mar ($/bushel) May Jul Sep Dec Soybean Meal Mar ($/ton) May Jul Aug Sep Oct Cotton Mar ( /lb) May Jul Oct Dec Live Cattle Feb ($/cwt) Apr Jun Aug Oct Feeder Cattle Jan ($/cwt) Mar Apr May Aug Sep Market Hogs Feb ($/cwt) Apr May Jun Jul

7 Steers: Medium/Large Frame #1-2 This Week Last Week Year Ago Low High Weighted Average Weighted Average Weighted Average $/cwt lbs lbs lbs lbs lbs Steers: Small Frame # lbs lbs lbs lbs Steers: Medium/Large Frame # lbs lbs lbs lbs lbs Holstein Steers lbs lbs lbs Slaughter Cows & Bulls Prices on Tennessee Reported Livestock Auctions for the week ending February 3, 2017 Breakers 75-80% Boners 80-85% Lean 85-90% Bulls YG Heifers: Medium/Large Frame # lbs lbs lbs lbs Heifers: Small Frame # lbs lbs lbs lbs Heifers: Medium/Large Frame # lbs lbs lbs lbs Cattle Receipts: This week: 5,932 (9) Week ago: 8,050 (11) Year ago: 8,756 (11) 7

8 Tennessee lbs. M-1 Steer Prices 2016, 2017 and 5-year average Tennessee lbs. M-1 Steer Prices 2016, 2017 and 5-year average /2015 Avg /2015 Avg Area Finished Cattle Prices 2015, 2016 and 5-year average Tennessee Slaughter Cow Prices Breakers 75-80% 2015, 2016 and 5-year average 2011/2015 Avg / Prices Paid to Farmers by Elevators Friday, January 27, 2017 Thursday, February 2, 2017 Friday Monday Tuesday Wednesday Thursday Low High Low High Low High Low High Low High $/bushel No. 2 Yellow Soybeans Memphis N.W. B.P N.W. TN Upper Md Lower Md Yellow Corn Memphis N.W. B.P N.W. TN Upper Md Lower Md Wheat Memphis

9 Video Board Sale and Graded Sales 2/1/17 Warren County Livestock Receipts: 1451 (Prices for Blk, BWF, CharX) Steers: Med & Lg 1 Heifers: Med & Lg lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs and over and over Steers: Med & Lg 2 Heifers: Med & Lg lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs and over Bulls: Med & Lg lbs lbs lbs lbs lbs lbs Self-Reported and Self Graded Livestock Markets lbs lbs lbs Bulls: Med & Lg lbs lbs lbs /30/17 Morris Brothers Stockyard, Pikeville, TN Receipts: 102 Steers: Heifers: lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs Bulls: lbs lbs lbs lbs lbs Self-Reported and Self Graded Livestock Markets 1/31/17 Somerville Livestock Sales Receipts: 300 Steers/Bulls: Med & Lg 1-2 Heifers: Med & Lg lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs Value Added: Value Added: Steers: Med & Lg 1-2 Heifers: Med & Lg lbs lbs lbs lbs /31/17 TN Livestock Producers Fayetteville Receipts: 440 (178 graded & grouped) Steers: Med & Lg 1-2 Heifers: Med & Lg lbs lbs lbs lbs

10 Beef Industry News Featured Article from BEEF Magazine Should you make maternal or terminal matings? Burke Teichert Feb 03, 2017 For the last 30 years or more, most American cattle producers have been making terminal sire matings. It first started with crossbreeding, but for the last 15 or so of those years, the matings have been within one breed. Let me explain that rather blunt statement. In the early 70s, when cow size and milking ability were reasonable, the new breeds were beginning to become popular with American cattlemen. Many started to use Simmental, Gelbvieh, French Charolais, Limousin, Saler and other breeds in an attempt to make our Angus, Hereford and Shorthorn cattle better and to capture some heterosis. At the same time, the USDA Meat Animal Research Center (MARC) began its Germ Plasm Evaluation (GPE) work which continues to this day. The new breeds were bigger (in some cases significantly bigger) than our domestic cattle. I have no problem with the idea of infusing new germ plasm into our domestic cattle production, but I do have a problem with the race to bigness that began when the new breeds showed up. This has gone to the point that now the biggest breeds in America are Hereford and Angus. And by biggest, I don t mean the numbers of cattle, but bigger in hip height and weight. The original concept of terminal crossing was to mate a moderate sized cow to a bull from a larger breed (complementarity) to get a big calf from a moderate cow and thereby gain some production efficiency by keeping cowherd maintenance requirements reasonable and maintaining stocking rates while weaning bigger calves that would grow faster in the feedlot. However, we simply kept breeding bigger bulls to the cows we had and to the heifers we were retaining from those matings. Weaning weights increased, but so did cow size and milking ability. We liked the big weaning weights and didn t pay much attention to the antagonistic results in cow size and milk production along with increases in feed requirements, poorer conception rates and lower stocking rates on our ranches. I lived through and experienced every bit of this starting in 1971 or 1972 when our family ranch started to breed moderate sized Hereford cows to Simmental bulls. I could persuade Dad to try that because he thought the calves might closely resemble Herefords. In our attempts to grade up toward purebred Simmental, only low percentages of the ¾ Simmental heifers got pregnant. We then knew there was a problem. So, we started to breed the ½ Simmental heifers to Red Angus bulls which made a real nice cow, but we were caught in the race too always finding the highest growth bulls of whichever breed we were using. We were all making terminal matings. Someone should have been selecting for fertility, maintenance efficiency, herd health, environmental adaptation to a low input environment, etc. From then until now I have made a lot of changes in the way I breed cattle. Thankfully, I wasn t alone. Others were seeing the light also and we could have a good exchange of ideas and share personal observations--such as, you can have too much growth and size, you can have too much milk, and it s not easy to get enough heterosis. Now I am to the point where I recommend that you make a choice: 1. Make your own replacement heifers that are highly fertile; moderate in size and milk production; healthy and functional in a low input environment; calve unassisted and raise acceptable market calves. 2. Buy replacement cows from those breeders who make the kind I just described, mate them to terminal sires and sell all the calves. Most ranches are not large enough to have one herd designated to make cows and another herd for terminal crossing. I have managed large ranches and know the logistics of two breeding programs are not simple. If you have two centers of operations or you can have two large adult cowherds, you may consider having a replacement cow program and a terminal program; but, in most cases, I would recommend one or the other. It is difficult to be truly good at two things and most ranches will have a comparative advantage for one option or the other. If you can t find or develop a market for bred cows, or breeding and calving first calf heifers presents problems, you may have a comparative advantage in buying replacement cows and terminal crossing. I think most small ranches should buy cows, terminal cross and sell all the calves. This will greatly simplify operations and generate a good marketable product while achieving a good stocking rate. When terminal crossing, every cow has the potential to wean a calf if all the open cows are sold and replaced with pregnant cows after weaning. For complete article: should-you-make-maternal-or-terminal-matings Department of Agricultural and Resource Economics 314 Morgan Hall 2621 Morgan Circle USDA / Tennessee Department of Agriculture Market News Service