Tennessee Market Highlights

Transcription

1 Tennessee Market Highlights September 28, 2018 Number: 39 Trends for the Week Compared to a Week Ago Slaughter Cows $1 to $4 lower Slaughter Bulls $3 lower Feeder Steers Steady to $4 higher Feeder Heifers Unevenly steady Feeder Cattle Index Wednesday s index: Fed Cattle The 5-area live price of $ was down $0.28. The dressed price of $ was down $0.79. Corn December closed at $3.56 a bushel, down 1 cent since last Friday. Soybeans November closed at $8.45 a bushel, down 2 cents since last Friday. Wheat December closed at $5.09 a bushel, down 12 cents since last Friday. Cotton December closed at cents per lb, down 2.76 cents since last Friday. Livestock Comments by Dr. Andrew P. Griffith FED CATTLE: Fed cattle traded steady compared to last week. Prices on a live basis were mainly $110 to $111 while prices on a dressed basis were mainly $174 to $175. The 5-area weighted average prices thru Thursday were $ live, down $0.28 from last week and $ dressed, down $0.79 from a week ago. A year ago prices were $ live and $ dressed. It is difficult to tell who is winning the fed cattle trade war as prices have been fairly steady for three consecutive weeks. If one were to guess, packers and feedlot managers could either be satisfied or disgruntled at not gaining any ground the past few weeks. It is difficult to imagine live cattle prices moving lower in the fourth quarter with a target as high as $120 before the end of the year. It may be difficult to reach the $120 price point, but cattle feeders will do their best to force prices higher. December live cattle futures are just shy of $119 to end the week with plenty of time to push higher. Cattle feeders are looking beyond December as they continue to pay strong prices for feeder cattle which means prices will have to strengthen significantly for positive margins. BEEF CUTOUT: At midday Friday, the Choice cutout was $ down $0.33 from Thursday and down $0.60 from last Friday. The Select cutout was $ up $1.03 from Thursday and down $1.12 from last Friday. The Choice Select spread was $10.79 compared to $10.27 a week ago. The monthly cold storage report was released this week detailing the quantity of meat in freezers at the end of August. Beef in cold storage at the end of August totaled 503 million pounds which is 27 million more pounds than one year ago. Pork in cold storage totaled a little over 582 million pounds which is about 7 million more pounds than August Similar to pork and beef, poultry in cold storage at the end of August was 154 million pounds higher than last year and totaled 1.54 billion pounds with chicken accounting for nearly 928 million of those pounds. There is no doubt there is a lot of meat in cold storage, but when put in relative terms, the numbers do not seem so large. For instance, weekly beef production in 2018 has averaged 506 million pounds which means there is one week worth of beef production in cold storage. Similarly, weekly pork production has averaged 490 million pounds meaning there is just over a week s worth of pork production in cold storage. One should note, the products (cuts, grind) in cold storage do not align with the products fabricated each week. OUTLOOK: It is sometimes useful to use hindsight to make decisions for the current and future marketing time periods. Considering the November feeder cattle futures contract, it is very interesting to look at the price movement the past year and the hedging opportunities that were present at one time or another. Open interest and volume in the November feeder cattle contract was not sufficient for trade until February During the month of February there was a small window to trade the November contract in the $153 to $154 price range. That window was extremely narrow, but a hedger could have traded near the $150 price mark the entire month. Following the strong February, the November contract traded lower through March and traded below $140 in early April. The contract then rebounded to trade in the $145 to $148 range for much of April before dropping below $140 again in the middle of May. The November contract price strengthened from the Middle of May through most of July when the contract traded in the $154 to $155 price range for several days. The strong early summer price movement was then tested by softer prices through most of August and early September when the November contract moved (Continued on page 2)

2 Livestock Comments by Dr. Andrew Griffith (Continued from page 1) back to the $147 to $150 range. The past two weeks the November contract has been trading between $155 and $159 and is offering a strong price for feeder cattle. The purpose of looking back at the market movement is to help producers understand that there have been several opportunities to hedge the sale of calves and feeder cattle this fall at profitable levels. This recount of the November contract will likely fall on some deaf ears since the market is currently strong, but what if the market was in one of its downward phases? Then the writer would be throwing salt in the wound! This is something to consider for marketing next year. Spring futures are strong right now. The market will most likely trade lower at some point and it will likely trade higher at some point. However, selling a futures contract now and then buying it back when prices move lower could really help with margins on those cattle. ASK ANDREW, TN THINK TANK: A question was asked this week concerning the marketing of grass fed beef. This particular question was very specific, but it has a broader answer than just the grass fed beef business. When a producer begins evaluating a new venture it is important to understand the changes in production that must occur to achieve a certain product, but it is even more important to know and understand the marketing structure of the business. Questions that must be answered include: How will the product be marketed? Who will be the consumer of the product? How will excess production be marketed? Does excess production fit another market whether that is in live animal form or consumable product form? There are many similar questions that need to be answered. Maybe one of the most important things to know is the people up and down the supply chain. It is important to know the people in which one is doing business as building relationships and trust will always be a key factor. 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 October $ ; December $ ; February $ Feeder cattle October $ ; November $ ; January $ ; March $ ; December corn closed at $3.56 down $0.09 from Thursday. Milk Futures Thursday, September 27, 2018 Month Class III Close Class IV Close Sep Oct Nov Dec Jan Average Daily Slaughter Cattle Hogs Number of head This week (4 days) 119, ,750 Last week (4 days) 118, ,250 Year ago (4 days) 118, ,500 This week as percentage of Week ago (%) 101% 110% Year ago (%) 101% 104% 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, soybeans, cotton, and wheat were down for the week. On Friday, the USDA released the much anticipated quarterly Grain Stocks report. The September report provides estimates of corn and soybean stocks at the end of the most recent marketing year (2017/18) and an estimate of wheat stocks as of September 1. The USDA report is available online at: As of September 1, corn stocks were estimated at 2.14 billion bushels, down 153 million (7%) from last year and 138 million greater than the billion bushels estimated in the September WASDE; soybean stocks were estimated at 438 million bushels, up 136 million (45%) from last year and 43 million greater than the 395 million bushels estimated in the September WASDE; and wheat stocks were estimated at billion bushels, up 113 million (5%) from last year. Overall, the report was decidedly bearish with the estimates at or exceeding the upper end of the pre-report range. The market reacted quickly with corn futures down 8-9 cents, soybeans down 9-10 cents, and wheat down 3-4 cents. The move wiped out early weak gains for corn and soybeans and pushed wheat lower (down cents for the week). It will be interesting to see if corn and soybean futures prices are able to resume the upward momentum of the past 10 trading days or if prices reverse and move lower to retest contract lows. Early price action next week will be critical to avoid further price softness as harvest continues to progress. December cotton futures continue to move lower with the six month low of 75.9 the next test of support. Cotton is down cents from the June 8th high of Reduced abandonment in Texas, improved U.S. yields, and trade uncertainty continue to weigh heavily on the market. Corn Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 36 under to 12 under the December futures contract with an average of 23 under at the end of the week. December 2018 corn futures closed at $3.56, down 1 cent since last Friday. For the week, December 2018 corn futures traded between $3.54 and $3.66. Corn net sales reported by exporters from September were above expectations with net sales of 67.4 million bushels for the 2018/19 marketing year and net sales cancellation of 0.4 million bushels for the 2019/20 marketing year. Exports for the same time period were up 26% compared to last week at 53.5 million bushels. Corn export sales and commitments were 30% of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31) compared to a 5-year average of 27%. Ethanol production for the week ending September 21 was million barrels per day, down 15,000 from the previous week. Ethanol stocks were million barrels, down 117,000 barrels. Dec/Mar and Dec/Dec future spreads were 12 and 35 cents, respectively. The Crop Progress report estimated corn condition at 69% good-to-excellent and 12% poor-to-very poor; corn dented at 97% compared to 93% last week, 92% last year, and a 5-year average of 93%; corn mature at 72% compared to 54% last week, 49% last year, and a 5-year average of 53%; and corn harvested at 16% compared to 9% last week, 10% last year, and a 5-year average of 11%. In Tennessee, corn condition was estimated at 76% good-to-excellent and 4% poor-to-very poor; corn mature at 93% compared to 84% last week, 94% last year, and a 5-year average of 89%; and corn harvested at 60% compared to 40% last week, 57% last year, and a 5-year average of 43%. In Tennessee, January 2019 corn cash forward contracts averaged $3.63 with a range of $3.31 to (Continued on page 4) 3

4 Crop Comments by Dr. Aaron Smith $3.88. March 2019 corn futures closed at $3.68, down 1 cent since last Friday. December 2019 corn futures closed at $3.91, down 2 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2019 Put Option costing 32 cents establishing a $3.68 futures floor. Soybeans Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee. Basis ranged from 76 under to 45 under the November futures contract at elevators and barge points. Average basis at the end of the week was 56 under the November futures contract. November 2018 soybean futures closed at $8.45, down 2 cents since last Friday. For the week, November 2018 soybean futures traded between $8.37 and $8.59. Net sales reported by exporters were within expectations with net sales of 32 million bushels for the 2018/19 marketing year and 0.06 million bushels for the 2019/20 marketing year. Exports for the same period were up 2% compared to last week at 30.1 million bushels. Soybean export sales and commitments were 34% of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31), compared to a 5-year average of 46%. Nov/Dec 2018 soybean-to-corn price ratio was 2.37 at the end of the week. Nov/Jan and Nov/Nov future spreads were 14 and 67 cents, respectively. The Crop Progress report estimated soybean condition at 68% good-to-excellent and 10% poor-to-very poor; soybeans dropping leaves at 71% compared to 53% last week, 60% last year, and a 5-year average of 57%; and soybeans harvested at 14% compared to 6% last week, 9% last year, and a 5-year average of 8%. In Tennessee, soybean condition was estimated at 74% good-to-excellent and 4% poor-to-very poor; soybeans dropping leaves at 60% compared to 41% last week, 52% last year, and a 5-year average of 49%; and soybeans harvested at 16% compared to 8% last week, 6% last year, and a 5-year average of 8%. In Tennessee, Oct/Nov 2018 soybean cash contracts average $7.87 with a range of $7.53 to $8.10. January 2019 soybean futures closed at $8.59, down 2 cents since last Friday. November 2019 soybean futures closed at $9.12, unchanged since last Friday. Downside price protection could be achieved by purchasing a $9.20 November 2019 Put Option which would cost 60 cents and set an $8.60 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.33 at the end of the week. Cotton Delta upland cotton spot price quotes for September 27 were cents/lb ( ) and cents/lb ( ). Adjusted World Price (AWP) decreased 1.65 cents to cents. Net sales reported by exporters were down from last week at 70,300 bales for the 2018/19 marketing year and 58,200 for the 2019/20 marketing year. Exports for the same time period were 138,900 bales, down 7% from last week. Upland cotton export sales were 62% of the USDA estimated total annual exports for the 2018/19 marketing year (August 1 to July 31), compared to a 5-year average of 42%. The Crop Progress report estimated cotton condition at 39% good-to-excellent and 29% poor-to-very poor; cotton opening bolls at 58% compared to 49% last week, 55% last year, and a 5-year average of 57%; and cotton harvested at 16% compared to 13% last week, 14% last year, and a 5-year average of 9%. In Tennessee, cotton condition was estimated at 79% good-to-excellent and 4% poor-to-very poor; cotton bolls opening at 93% compared to 80% last week, 63% last year, and a 5-year average of 59%; and cotton harvested at 12% compared to 2% last week, 1% last year, and a 5-year average of 3%. December 2018 cotton futures closed at 76.37, down 2.76 cents since last Friday. For the week, December 2018 cotton futures traded between and cents. Dec/ Mar and Dec/Dec cotton futures spreads were 0.92 cents and -0.6 cents, respectively. March 2019 cotton futures closed at 77.29, 4 (Continued on page 5)

5 Crop Comments by Dr. Aaron Smith down 2.22 cents since last Friday. December 2019 cotton futures closed at 75.77, down 0.83 cents since last Friday. Downside price protection could be obtained by purchasing a 76 cent December 2019 Put Option costing 4.9 cents establishing a 71.1 cent futures floor. Wheat In Tennessee, September 2018 cash wheat ranged from $5.22 to $5.64 for the week. Wheat net sales reported by exporters were above expectations with net sales of 24.1 million bushels for the 2018/19 marketing year. Exports for the week were up 54% compared to last week at 11.6 million bushels. Wheat export sales were 39% 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 57%. The Crop Progress report estimated winter wheat planted at 28% compared to 13% last week, 22% last year, and a 5-year average of 26%. In Tennessee, winter wheat planted was estimated at 9% compared to 3% last week. December 2018 wheat futures closed at $5.09, down 12 cents since last Friday. December 2018 wheat futures traded between $5.05 and $5.31 this week. December wheat-to-corn price ratio was Dec/Mar and Dec/Jul future spreads were 18 cents and 31 cents, respectively. March 2019 wheat futures closed at $5.27, down 13 cents since last Friday. In Tennessee, June/July 2019 wheat cash contracts ranged from $5.47 to $5.65 for the week. July 2019 wheat futures closed at $5.40, down 15 cents since last Friday. Downside price protection could be obtained by purchasing a $5.50 July 2019 Put Option costing 42 cents establishing a $5.08 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, September 21, 2018 Thursday, September 27, 2018 Commodity Contract Month Friday Monday Tuesday Wednesday Thursday Soybeans Nov ($/bushel) Jan Mar May Jul Aug Corn Dec ($/bushel) Mar May Jul Sep Dec Wheat Dec ($/bushel) Mar May Jul Sep Soybean Meal Oct ($/ton) Dec Jan Mar May Jul Cotton Oct ( /lb) Dec Mar May Jul Live Cattle Oct ($/cwt) Dec Feb Apr Jun Feeder Cattle Sep ($/cwt) Oct Nov Jan Mar Apr Market Hogs Oct ($/cwt) Dec Feb Apr May

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 Prices on Tennessee Reported Livestock Auctions for the week ending September 28, lbs lbs lbs Slaughter Cows & Bulls 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: 6,245 (9) Week ago: 8,295 (9) Year ago: 8,633 (11) 7

8 Tennessee lbs. M-1 Steer Prices 2017, 2018 and 5-year average Tenne ssee lbs. M-1 Steers Prices 2 017, 2018 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, September 21, 2018 Thursday, September 27, 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 8

9 Graded Sales, Video Board Sales, Video Sales & Loads East Tennessee Livestock Center - September 26, load out of 90 steers; BQA certified producer; est. wt. 810 lbs.; 90% L&M-1s, 5% L&M-2s; medium flesh; $ load out of 71 Holstein steers; est. wt. 730 lbs.; 95% #1s, 5% #2s; medium flesh; $ load out of 90 Holstein steers; BQA certified producer; est. wt. 825 lbs.; 95% #1s, 5% #2s; medium flesh; $89.00 Blue Grass Stockyards - September 25, load of 70 steers; mostly blk; avg. wt. 725 lbs.; $ load of 62 steers; mostly blk; avg. wt. 810 lbs.; $ loads of 125 steers; blk; avg. wt. 825 lbs.; $ Dickson Regional Livestock Center - September 24, load of 70 heifers; M&L-1s; avg. wt. 745 lbs.; 14 colored cattle balance black; medium plus flesh; $ East Tennessee Livestock Center, Sweetwater, TN Graded Feeder Sale Weighted Average Report for Friday Sep 21, 2018 Cattle Receipts: 676 For complete report: Hardin County Stockyard - September 26, load of 79 steers, 578 lbs, M&L 2-3, Mixed Colors, 4 flesh, $ loads of 139 steers, 672 lbs,, M&L 1-2, Blk/BWF Red/RWF Ch/ ChX, 4-5 flesh, $ load of 64 steers, 736 lbs, M&L 1, Blk/BWF Red/RWF ChX, 5 flesh, $ load of 62 steers, 760 lbs, M&L 1, Blk/BWF few ChX, 5 flesh, $ loads of 115 steers, 867 lbs, M&L 1, Blk/BWF Red/RWF ChX, 5-6 flesh, $ Self-Reported and Self-Graded Markets Bulls: Med & Lg lbs lbs lbs /24/18 Morris Brothers Stockyard, Pikeville, TN Receipts: 71 Last Week: 237 Last Year: 63 Steers: Heifers: lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs Bulls: Other: lbs Head Cows: lbs Slaughter Cows (Over 900 lbs): lbs Slaughter Bulls (2045 lbs): Graded Sheep and Goats Sale Columbia Graded Sheep and Goat Sale Weighted Average Report for 09/24/2018 Receipts: 492 (goats: 292; sheep: 200) Last Sale: 437 For complete report: Mid-South Livestock Center - September 24, Load 56 Steers Medium-Large 1-2 weighing 833 lbs Self-Reported and Self-Graded Markets 9/28/18 TN Livestock Producers Fayetteville Receipts: 655 (301 graded & grouped) Steers: Med & Lg 1-2 Heifers: Med & Lg lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs lbs

10 Beef Industry News Featured Article from BEEF Magazine Does beef demand impact you? Burt Rutherford Sep 19, 2018 I got a call recently from a reader who had several concerns. Space doesn t allow me to address all of them, but let s look at a couple. He wondered why good beef demand both here and abroad hasn t translated into better prices at the ranch level. On the other hand, I ve been amazed that prices have stayed robust this year. So I did some checking and found some interesting numbers. Melissa McKendree, now at Michigan State, did her Ph.D at Kansas State and looked at exactly this question. She updated estimates on how 1% changes in retail domestic demand and 1% changes in export demand impact fed and feeder cattle prices. Estimates are that a 1% increase in domestic demand equals a 2.3% increase in fed cattle prices and 3.5% increase in feeder cattle prices. She estimated a 2% increase in domestic demand, which resulted in realized prices of $118 for fed cattle and $157 for feeders compared with the past two years. Without this demand increase, realized prices would have been $ for fed cattle and $ for feeders that translates to a $5.43 per cwt increase for fed cattle and a $10.98 increase for feeders. These impacts are just from domestic demand. Throughout the year, we ve reported that increased export demand has been a key factor underpinning cattle prices. Does increased beef demand result in better cattle prices? You better believe it. Another concern he had is the tremendous margin that packers are enjoying. Indeed, packers have been exceptionally profitable of late. Is that a bad thing? A simple explanation is that supply and demand work. Beef production, a direct result of more cattle numbers, is up 6.4% in 2016, 3.8% in 2017, 4.7% in 2018 and a projected 1.8% in Now consider that during the time when COOL was in effect, six beef packing plants closed because of the resulting increased cost and loss of efficiency. Also consider that when COOL was in effect, our cattle numbers were at historic lows, so COOL wasn t the only factor in those plants shutting down. But the extra burden that COOL imposed was clearly a factor. We have a situation now where we have more cattle to process and fewer packing plants to do so. That puts cattle feeders in a position of competing for chain space. The graph above shows this price-supply relationship. Two plants have been built in the West a plant in Aberdeen, S.D. and another in Boise, Idaho. Those will help even out the supply choke-point that packers enjoy, but not enough to balance the equation. So packers will continue to enjoy good profitability, as long as beef demand remains strong and retailers pay up for the product. Another truism is that the cattle cycle is in effect. So, in a few years, the supply situation will change and there will be fewer cattle available for packers to process. Plus, packers making a profit is a good thing. If they don t, more plants will close. That s bad for beef producers. Consumers don t buy your cattle they have to be processed into consumer-ready beef. Bottom line: COOL was and is bad for the beef business. Consumer demand both here and abroad is very good for the beef business. So are packers. And especially, so are consumers. Remember this: every dollar that goes into your pocket when you sell your cattle starts when a consumer decides to buy beef. Department of Agricultural and Resource Economics 314 Morgan Hall 2621 Morgan Circle arec.tennessee.edu USDA / Tennessee Department of Agriculture Market News Service