Tennessee Market Highlights

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1 Tennessee Market Highlights August 10, 2018 Number: 32 Trends for the Week Compared to a Week Ago Slaughter Cows Slaughter Bulls Feeder Steers Feeder Heifers Feeder Cattle Index Wednesday s index: Fed Cattle The 5-area live price of $ was up $1.04. The dressed price of $ was up $0.46. Corn September closed at $3.57 a bushel, down 12 cents since last Friday. Soybeans September closed at $8.50 a bushel, down 41 cents since last Friday. Wheat September closed at $5.46 a bushel, down 10 cents since last Friday. Cotton December closed at cents per lb, down 2.89 cents since last Friday. Livestock Comments by Dr. Andrew P. Griffith FED CATTLE: Fed cattle traded $2 to $3 lower than last week on a live basis. Prices on a live basis were mainly $110 to $111 while dressed prices were mainly $175 to $176. The 5-area weighted average prices thru Thursday were $ live, up $1.04 from last week and $ dressed, up $0.46 from a week ago. A year ago prices were $ live and $ dressed. Packers and feedlots did a little business on Thursday which would be considered an oddity considering all the late Friday trade the past month. Regardless of when trade occurs, feedlot managers were not able to keep prices elevated as in previous weeks due to softness that has come into live cattle futures. The August contract is $2 to $3 lower than last Friday, but there is some optimism in the market as the December contract is trading over $113 and the February 2019 contract is over $116. Both of these contracts were trading a couple dollars higher last week, but there is plenty of time for them to recover. The key to the market will continue to be beef demand as expected supply will change very little. BEEF CUTOUT: At midday Friday, the Choice cutout was $ up $0.24 from Thursday and up $1.75 from last Friday. The Select cutout was $ up $0.28 from Thursday and up $0.41 from last Friday. The Choice Select spread was $7.93 compared to $6.59 a week ago. The Economic Research Service released its monthly retail meat values for July. The all fresh beef retail value for July was $5.76 per pound which is slightly lower than the previous month and $0.07 lower than July Similarly, the retail value for Choice beef for July increased $0.04 from June to $6.02 per pound which is $0.08 lower than July a year ago. There are always questions from cattle producers concerning the retail value of beef relative to the value of the calves and feeder cattle they are currently marketing. The first thing to understand is that retail prices are generally lagged compared to cattle prices which means they do not always move in the same direction. Retail meat prices are generally slow to increase following higher livestock and wholesale meat prices and they are slower to decrease when wholesale and livestock prices decline. The slower reaction in retail prices helps guard against the consumer experiencing sticker shock. Additionally, retailers are working off a margin and they are going to stretch meat prices to garner an acceptable margin. OUTLOOK: Demand for feeder cattle and calves remained strong this week with several active buyers. Many cattle producers in Tennessee and across the nation will soon be setting wheels under spring born calves as the fall marketing run will be in full swing from September through November which means the market will be flush with cattle. Despite strong demand, it may be difficult for calf and feeder cattle prices to maintain the current level as the seasonally strong supply makes its way to town. This comment is made due to the seasonal tendency of calf prices to decline during the fall months and the expected larger calf crop compared to a year ago. Contrary to this line of thought, the fall 2017 marketing time period had strong calf and feeder cattle marketings and prices remained extremely strong throughout the entire period. Despite not having seasonal price movement in the calf market in 2017, producers should not be betting the farm on the same price action in Most of the fundamental information including fed cattle prices, calf numbers, reduced forage availability in many areas, and traditional marketing patterns are suggesting lower calf prices this fall. One aspect of the market that is supportive of prices is the expectation for a strong corn yield which should keep feed prices low. Another aspect of the (Continued on page 2)

2 Livestock Comments by Dr. Andrew Griffith (Continued from page 1) closed at $3.58 down $0.11 from Thursday. market place that will pressure calf prices lower is the losses that continue to mount in the feedlot. Cattle feeders experienced strong margins in 2017 and early in 2018 which resulted in cattle feeders being willing buyers, but now that they continue to run through the reserves, they may slow down on bidding up prices. Another market many cattle producers should be thinking about is the slaughter cow market. Many producers will be marketing slaughter cows this fall and the market price is already deteriorating. If one does not want to carry them through the winter then market them as soon as possible. ASK ANDREW, TN THINK TANK: At a meeting this week, there was a discussion related to beef supply and demand. One of the questions during this discussion was related to the industry reducing beef supply in the short run to support cattle prices. The market naturally manages supply through prices received. In other words, when cattle prices get too low then producers across the country begin herd contraction and when cattle prices are high, producers expand cattle production. In order to manage total industry beef production, it would require government intervention which is a terrible option. Even if the industry as a whole decided to reduce supply, how would the industry do that? Would the industry contract to a smaller cow herd, shrink the physical size of the cow, or not fully finish the feeder cattle that are currently being produced? It is doubtful any cattle producer is going to make the decision to produce fewer cattle because the industry says so. Likewise, changing the physical size of a cow takes time which means it is unlikely and under finishing cattle results in less Choice and Prime beef. The solution: it is probably best if the market price drives the free market! 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 FRIDAY S FUTURES MARKET CLOSING PRICES: Friday s closing prices were as follows: Live/fed cattle August $ ; October $ ; December $ ; Feeder cattle August $ ; September $ ; October $ ; November $ ; September corn Milk Futures Thursday, August 9, 2018 Month Class III Close Class IV Close Aug Sept Oct Nov Dec Average Daily Slaughter Cattle Hogs Number of head This week (4 days) 119, ,000 Last week (4 days) 118, ,250 Year ago (4 days) 117, ,250 This week as percentage of Week ago (%) 101% 99% Year ago (%) 102% 103% USDA Box Beef Cutout Value Choice 1-3 Select lbs 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, soybeans, and wheat were down for the week. Prior to Friday, wheat futures were up for the week, corn and soybeans were trading flat, and cotton was down around 1 cent. On Friday, the USDA released the Crop Production and WASDE reports and the news was overwhelmingly bearish. As a result, soybeans were down 43 cents, corn was down 11 cents, wheat was down 18 cents, and cotton was down 2.0 cents. Nationally, corn yield was estimated at bu/acre, up 1.8 bu/acre from 2017 and an all-time record; soybean yield was projected at 51.6 bu/acre, up 2.5 bu/acre from last year and near the all-time record of 52 bu/acre in 2016; winter wheat yield was estimated at 47.9 bu/acre, down 2.3 bu/acre from last year and down 0.1 bu/acre from last month; and upland cotton yield was projected at 895 lbs/acre, the same as last year (all cotton yield was estimated at 911 lbs/acre, up 6 lbs/acre from 2017). In Tennessee, average corn yield was estimated at 174 bu/acre, up 3 bu/acre from last year; soybean yield was estimated at 49.0 bu/acre, down 1 bu/acre from last year; upland cotton yields was estimated at 1,050 lbs/acre, up 17 lbs/acre compared to last year; and winter wheat yield was estimated at 63 bu/acre, down 7 bu/acre compared to last year. Year-over year projected global corn stocks are down billion bushels; wheat stocks are projected down 518 million bushels; and cotton stocks are projected down 7.41 million bales (global soybean stocks are projected up 379 million bushels). Full details of the WASDE report for corn, soybeans, cotton, and wheat are available online at: Pages/MonthlyCropComments.aspx. Corn Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, and Lower-middle Tennessee and weakened at Northwest Tennessee. Overall, basis for the week ranged from 20 under to 30 over the September futures contract with an average of 1 under at the end of the week. September 2018 corn futures closed at $3.57, down 12 cents since last Friday. For the week, September 2018 corn futures traded between $3.57 and $3.73. Corn net sales reported by exporters from July 27-August 2 were within expectations with net sales of 21.8 million bushels for the 2017/18 marketing year and 25.9 million bushels for the 2018/19 marketing year. Exports for the same time period were down 12% compared to last week at 56.2 million bushels. Corn export sales and commitments were 98% of the USDA estimated total annual exports for the 2017/18 marketing year (September 1 to August 31) compared to a 5-year average of 104%. Ethanol production for the week ending August 3 was million barrels per day, up 36,000 from the previous week. Ethanol stocks were million barrels, down 44,000 barrels. Sep/Dec and Sep/Mar future spreads were 14 and 26 cents, respectively. The Crop Progress report estimated corn condition at 71% good-to-excellent and 10% poor-to-very poor; corn silking at 96% compared to 91% last week, 92% last year, and a 5-year average of 92%; corn dough at 57% compared to 38% last week, 39% last year, and a 5-year average of 37%; and corn dented at 12% compared to 6% last year and a 5-year average of 6%. In Tennessee, corn condition was estimated at 71% good-to-excellent and 9% poor-to-very poor; corn silking at 98% compared 96% last week, 99% last year, and a 5-year average of 98%; corn dough at 88% compared to 78% last week, 81% last year, and a 5-year average of 79%; and corn dented at 24% compared to 28% last year and a 5-year average of 27%. In Tennessee, September 2018 corn cash forward contracts averaged $3.60 with a range of $3.50 to $3.91. December 2018 corn futures closed at $3.71, down 13 cents since last Friday. (Continued on page 4) 3

4 Crop Comments by Dr. Aaron Smith Downside price protection could be obtained by purchasing a $3.80 December 2018 Put Option costing 19 cents establishing a $3.61 futures floor. March 2019 corn futures closed at $3.83, down 12 cents since last Friday. Soybeans Average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, Lower-middle, and Northwest Tennessee. Basis ranged from 48 under to 11 over the September futures contract at elevators and barge points. Average basis at the end of the week was 23 under the September futures contract. September 2018 soybean futures closed at $8.50, down 41 cents since last Friday. For the week, September 2018 soybean futures traded between $8.49 and $9.03. Net sales reported by exporters were within expectations with net sales of 15.5 million bushels for the 2017/18 marketing year and 19.6 million bushels for the 2018/19 marketing year. Exports for the same period were up 19% compared to last week at 37.3 million bushels. Soybean export sales and commitments were 103% of the USDA estimated total annual exports for the 2017/18 marketing year (September 1 to August 31), compared to a 5-year average of 103%. September soybean-to-corn price ratio was 2.38 at the end of the week. Sep/Nov and Sep/Jan future spreads were 11 and 23 cents, respectively. The Crop Progress report estimated soybean condition at 67% good-to-excellent and 10% poor-to-very poor; soybeans blooming at 92% compared to 86% last week, 89% last year, and a 5- year average of 86%; and soybeans setting pods at 75% compared to 60% last week, 63% last year, and a 5-year average of 58%. In Tennessee, soybean condition was estimated at 71% good-to-excellent and 7% poor-to-very poor; soybeans blooming at 89% compared to 84% last week, 88% last year, and a 5-year average of 77%; and soybeans setting pods at 68% compared to 55% last week, 66% last year, and a 5-year average of 54%. In Tennessee, Oct/Nov 2018 soybean cash contracts average $8.65 with a range of $8.43 to $8.92. November 2018 soybean futures closed at $8.61, down 41 cents since last Friday. Downside price protection could be achieved by purchasing an $8.70 November 2018 Put Option which would cost 36 cents and set an $8.34 futures floor. Nov/Dec 2018 soybean-to-corn price ratio was 2.32 at the end of the week. January 2019 soybean futures closed at $8.73, down 40 cents since last Friday. Cotton Delta upland cotton spot price quotes for August 9 were cents/lb ( ) and cents/lb ( ). Adjusted World Price (AWP) decreased 0.39 cents to cents. Net sales reported by exporters were 176,600 bales for the 2018/19 marketing year, which started August 1. Exports for August 1-2 were 43,100 bales million bales of upland cotton sales were carried from the 2017/18 to 2018/19 marketing year. Total accumulated exports for the 2017/18 marketing year ended July 31 were 14.8 million bales. Upland cotton export sales were 55% of the USDA estimated total annual exports for the 2017/18 marketing year (August 1 to July 31), compared to a 5-year average of 34%. The Crop Progress report estimated cotton condition at 40% good-to-excellent and 32% poor-to-very poor; cotton squaring at 92% compared to 88% last week, 92% last year, and a 5-year average of 94%; cotton setting bolls at 60% compared to 49% last week, 56% last year, and a 5-year average of 62%; and cotton opening bolls at 9% compared to 8% last year and a 5-year average of 6%. In Tennessee, cotton condition was estimated at 82% good-to-excellent and 5% poor-to-very poor; and cotton setting bolls at 85% compared to 70% last week, 85% last year, and a 5-year average of 70%. December 2018 cotton futures closed at 85.23, down 2.89 cents since last Friday. For the week, December 2018 cotton futures traded between 85.1 and cents. Dec/Mar and Dec/Dec cotton futures spreads were 0.48 cents and cents, respectively. Downside price protection could be obtained by purchasing 4 (Continued on page 5)

5 Crop Comments by Dr. Aaron Smith an 86 cent December 2018 Put Option costing 4.14 cents establishing an cent futures floor. March 2019 cotton futures closed at 85.71, down 2.37 cents since last Friday. December 2019 cotton futures closed at 80, down 1.42 cents since last Friday. Wheat In Tennessee, August 2018 cash wheat ranged from $5.55 to $6.26 for the week. Wheat net sales reported by exporters were within expectations with net sales of 11.7 million bushels for the 2018/19 marketing year. Exports for the week were down 12% compared to last week at 12.7 million bushels. Wheat export sales were 28% of the USDA estimated total annual exports for the 2018/19 marketing year (June 1 to May 31), compared to a 5-year average of 44%. The Crop Progress report estimated winter wheat harvested at 90% compared to 85% last week, 93% last year, and a 5-year average of 92%; spring wheat condition at 64% good-to-excellent and 6% poor-to-very poor; and spring wheat harvested at 13% compared to 4% last week, 22% last year, and a 5- year average of 14%. September 2018 wheat futures closed at $5.46, down 10 cents since last Friday. September 2018 wheat futures traded between $5.45 and $5.86 this week. September wheat-to-corn price ratio was Sep/Dec and Sep/Jul future spreads were 23 cents and 44 cents, respectively. December 2018 wheat futures closed at $5.69, down 10 cents since last Friday. In Tennessee, June/July 2019 wheat cash contracts ranged from $6.09 to $6.16 for the week. July 2019 wheat futures closed at $5.90, down 7 cents since last Friday. Downside price protection could be obtained by purchasing a $6.00 July 2019 Put Option costing 54 cents establishing a $5.46 futures floor. Additional Information: Links for data presented: U.S. Export Sales - USDA FAS: Weekly Export Performance Indicator EIA: Weekly ethanol Plant Production - EIA: Weekly Supply Estimates - Upland Cotton Reports - Tennessee Crop Progress - U.S. Crop Progress - USDA AMS: Market News - 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, August 3, 2018 Thursday, August 9, 2018 Commodity Contract Month Friday Monday Tuesday Wednesday Thursday Soybeans Aug ($/bushel) Sep Nov Jan Mar May Corn Sep ($/bushel) Dec Mar May Jul Sep Wheat Sep ($/bushel) Dec Mar May Jul Soybean Meal Aug ($/ton) Sep Oct Dec Jan Mar Cotton Oct ( /lb) Dec Mar May Jul Live Cattle Aug ($/cwt) Oct Dec Feb Apr Feeder Cattle Aug ($/cwt) Sep Oct Nov Jan Mar Market Hogs Aug ($/cwt) Oct Dec Feb Apr

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 August 10, 2018 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: 8,174 (10) Week ago: 8,369 (11) Year ago: 8,320 (10) 7

8 Tennessee lbs. M-1 Steer Prices 2017, 2018 and 5-year average Tennessee lbs. M-1 Steers Prices 2017, and 5-year average /2016 Avg /2016 Avg Area Finished Cattle Prices 2017, 2018 and 5-year average Tennessee Slaughter Cow Prices Breakers 75-80% 2017, 2018 and 5-year average 2012/2016 Avg Prices Paid to Farmers by Elevators Friday, August 3, 2018 Thursday, August 9, 2018 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 Graded Sales, Video Board Sales, Video Sales & Loads Self-Reported and Self-Graded Markets Dickson Regional Livestock - August 6, load of 66 steers; avg. wt. 732 lbs.; M&L-1s; Black/BWF, ChaX & Red/RWF; $ East Tennessee Livestock Center Graded Feeder Sale Weighted Average Report for Friday Aug 3, 2018 Cattle Receipts: 1544 For complete report: Hardin County Stockyard - August 8, load of 63 steers; avg. wt. 816 lbs; M&L-1s; Black/BWF CHX & Red/RWF; 5 Flesh; $ load of 75 heifers; avg. wt. 659 lbs; M&L 1-2s; Black/BWF Charolais/CHX Red/RWF; 4-5 Flesh; $ load of 73 heifers; avg. wt. 746 lbs; M&L-1s; Black/BWF and Red; 5 Flesh; $ Lower Middle Tennessee Cattlemens Video Board Sale Feeder Cattle Weighted Average Report for 08/03/2018 Receipts: 3238 For complete report: Self-Reported and Self-Graded Markets 9

10 Beef Industry News Featured Article from DROVERS Toss-Up on Retained Ownership Wyatt Bechtel August 8, 2018 Market signals typically offer a clue whether or not to retain ownership. Calf prices in 2014 and 2015 were 40% to 50% higher than this year, which made the decision to sell weaned calves a no-brainer. But market conditions for 2018/19 are not an easy call, and analysts say the decision to retain ownership is a proposition. Whether to market after weaning, running calves longer as stockers or taking calves onto the feedlot is a decision that is weighed differently by cow-calf producers. Market prices and forage growing conditions locally are two of the biggest factors that most producers will need to consider. The beef industry has reached a relative balance with the cowherd back at average levels and feedlots stocked, says Derrell Peel, Oklahoma State University Extension economist. Obviously what you re looking at a lot of times is do we have something kind of out of whack that either favors selling them as feeders or favors keeping them all the way through the feedlot, Peel says. This year there are no clear market signals in either direction. Peel expects normal margins, but believes feed costs will be favorable in feedlots with lower grain prices. Cost of production at the feedlot level will be fairly attractive, more than likely. Obviously, short-term dynamics can impact that, Peel says. I suspect that there will be opportunities for kind of normal returns as it stands. Being in a middle-of-the-road market leaves producers with a lot of options because there are no clear market signals on selling or retaining, says Josh Maples, assistant professor of agriculture economics at Mississippi State University. I think in a year like this, it really comes down to how cheaply you can add the pounds, Maples says. In areas of the country such as the Southeast, moisture conditions have been good, helping boost forage growth regionally. Producers in states such as Alabama, Florida, Georgia, Kentucky and Tennessee have no problems with drought heading into late summer/early fall so there should be ample feed to add cheap gains. Depending on forage availability, calves can become stockers on the farm or ranch after weaning to achieve weights of 700 lb. to 800 lb. Then that gives you the opportunity to retain ownership through the feedlot like we typically think of retained ownership, Maples says. In other areas of the country such as the southern Plains and western U.S. drought is relatively widespread forcing early weaning on some ranches. When in drought situations cattle might not weigh what producers would want, says John Nalivka, president of Sterling Marketing. They also might have difficulty getting an acceptable price for their weaned calves because of a regional flood of calves on the market. Retained ownership can work in drought if you ve got good calves and you re simply not being offered the value on those calves, Nalivka says. Should the market be depressed regionally, calves can be sent straight to the feedlot to be finished. If you ve got data, some history on how your calves perform, then you have some possibilities of creating pretty good values, he says. One situation that has the potential to change the profitability of retained ownership in the foreseeable future is the export market. Trade wars entered into by the Trump administration have resulted in a ripple effect of retaliatory tariffs. Peel says beef exports have helped support the cattle market for the past 18 months, but tariffs could have potential to alter those gains. If you throw one rock in the pond, you can follow the circles and see where they go. If you throw two rocks in the pond, you can kind of see how the circles interact with each other, Peel says of the complicated tariff situation. When it s over 30 rocks in the pond at the same time, you have no idea what is going on and how to sort out the impact. Uncertainty is one of the only certainties in raising cattle, and tariffs could muddy the waters for marketing decisions. Nalivka cautions producers should not be tormented about how tariffs could impact cattle prices. I would stress don t worry about what you can t manage or worry about the things you don t have control over, Nalivka says. Instead, he advises cattlemen to know their breakevens and implement risk management to help protect profits if markets go down. Department of Agricultural and Resource Economics 314 Morgan Hall 2621 Morgan Circle arec.tennessee.edu USDA / Tennessee Department of Agriculture Market News Service