Tennessee Market Highlights

Transcription

1 Tennessee Market Highlights March 23, 2018 Number: 12 Trends for the Week Compared to a Week Ago Slaughter Cows $3 to $4 lower Slaughter Bulls $4 to $6 lower Feeder Steers $2 to $6 lower Feeder Heifers $1 to $5 lower Feeder Cattle Index Wednesday s index: Fed Cattle The 5-area live price of $ is down $2.00. The dressed price is down $3.93 at $ Corn May closed at $3.77 a bushel, down 5 cents since last Friday. Soybeans May closed at $10.28 a bushel, down 21 cents since last Friday. Wheat May closed at $4.60 a bushel, down 7 cents since last Friday. Cotton May closed at cents per lb, down 1.02 cents since last Friday. Livestock Comments by Dr. Andrew P. Griffith FED CATTLE: Fed cattle traded $2 lower compared to a week ago on a live basis. Prices on a live basis were mainly $125 to $126 while dressed prices were mainly $201 to $202. The 5-area weighted average prices thru Thursday were $ live, down $2.00 from last week and $ dressed, down $3.93 from a week ago. A year ago prices were $ live and $ dressed. One hint of negative sentiment was in the finished cattle market one week ago as cash prices fell below year ago prices for the first time since September. A little more negative sentiment was in the market this week as finished cattle prices softened and cattle feeding margins tightened. Though finished cattle prices are softer, the bigger story is the strong basis at which live cattle are trading. Based on this week s market, live cattle traded $6 to $7 higher than the April futures contract. The expectation is for the cash price and futures price to converge as the market moves toward the expiration of the April contract. With that being said, serious price movement will have to occur from futures, cash, or both to see convergence. BEEF CUTOUT: At midday Friday, the Choice cutout was $ down $1.09 from Thursday and down $1.60 from last Friday. The Select cutout was $ down $0.29 from Thursday and down $0.18 from last Friday. The Choice Select spread was $6.39 compared to $8.55 a week ago. It would appear packers are attempting to slow slaughter rates with increased profitability in mind. The first thought by packers is to reduce the quantity of beef available which should support wholesale beef prices. The second thought is to defer purchasing cattle into future months which is front of mind because of lower live cattle prices on deferred futures contracts. Neither of these strategies will be beneficial as a long term solution to increasing margins. In fact, it could be detrimental to the industry as it changes when the supply is available and will increase supply with heavier cattle. One aspect of the beef market that has added value is the percentage of cattle grading Choice and Prime. For the week ending March 10th, 8.4 percent of cattle graded Prime resulting in the fifth consecutive week of 8 percent or better grading Prime. Similarly, the percent of cattle grading Choice has stayed in the 72 to 73 percent range during those five weeks. Higher grading cattle allow more beef to be moved into higher valued food service outlets and thus return more value to the industry. OUTLOOK: Calf and feeder cattle markets were softer this week compared to last week. Based on Tennessee weekly auction average prices, steer prices were $2 to $6 lower than last week while heifer prices were $1 to $5 lower than a week ago. Slaughter cow prices did not fare much better with prices $3 to $4 lower than the prior week. Declining cash prices are to be expected considering the losses in feeder cattle futures contracts that have ranged between $11 and $14 since February 20th on most contracts. The price decline has resulted in prices falling below existing support levels which makes it difficult to know where the bottom is in the market. Though a cash price decline should be expected given losses in the futures market, lightweight calf prices are beginning to move lower when the seasonal tendency would be for a few more weeks of stronger prices. This could mean the spring price peak for lightweight calves has already been witnessed and softness can be expected through the remainder of the spring months as well as the summer and fall months. If the apex on calf prices has been reached, there will likely be a long arduous path to the fall lows. For producers with calves that need to be weaned, when is the right time to market calves? The sooner the (Continued on page 2)

2 Livestock Comments by Dr. Andrew Griffith (Continued from page 1) better is probably the correct answer if the producer does not want to wean the calves and add weight. However, with calf prices on the decline, there could be an opportunity to add weight to these calves with hopes of a stronger feeder cattle market moving through the summer months. From a stocker operator standpoint, it might be wise to hold off on calf purchases another couple of weeks as prices could certainly decline further. Producers should always consider their particular situation when utilizing price forecasts and price expectations. The key to the cattle business is not to hit a homerun every year, but to string together several base hits that will result in profits each year. The March cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of March 1, 2018 totaled million head, up 8.8% compared to a year ago, with the pre-report estimate average expecting an increase of 8.1%. February placements in feedlots totaled 1.82 million head, up 7.3% from a year ago with the pre-report estimate average expecting placements up 4.5%. February marketing s totaled 1.68 million head up 1.6% from 2017 with prereport estimates expecting marketings up 1.4%. Placements on feed by weight: under 700 pounds up 2.3%, 700 to 899 pounds up 8.1%, and 900 pounds and over up 22.0%. 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 April $ ; June $ ; August $ ; Feeder cattle March $ ; April $ ; May $ ; August $ ; May corn closed at $3.77 up $0.01 from Thursday. ASK ANDREW, TN THINK TANK: A question was posed this week in relation to the cost of carrying a cow through an entire year. Based on the 2018 University of Tennessee cow-calf enterprise budget, it will cost a producer $964 per head to carry a cow for an entire year. Many readers will say that number is too high, but that value consists of $622 of variable expenses such as feed, pasture, hay, animal health, labor, and marketing and $342 of fixed expenses to cover buildings, equipment, taxes, and other fixed costs. There are sure to be producers with lower costs but there are also producers with higher costs than the one stated. The fixed cost category is where many producers fail to account for the full cost. Producers with a low overhead cost are likely the lowest cost producers and also the producers that are most likely to be profitable. It is also important to remember that economies of size play a factor in the annual cost per head. Milk Futures Thursday March 22, 2018 Month Class III Close Class IV Close Mar Apr May June July Average Daily Slaughter Cattle Hogs Number of head This week (4 days) 118, ,750 Last week (4 days) 116, ,250 Year ago (4 days) 116, ,750 This week as percentage of Week ago (%) 102% 100% Year ago (%) 102% 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. Concerns over potential retaliatory tariffs and trade disruptions were a hot topic in agricultural markets this past week. Currently, there is more smoke than fire however, in the past, agricultural commodities have received retaliatory tariffs when trade disputes occur. Posturing is always a part of trade negotiations but, the more trade rhetoric remains at the forefront of news headlines the more volatility will continue to be a concern in agricultural markets. One thing is certain, for the sake of US agricultural prices, strong export sales are vital. Next week the USDA will release the Prospective Plantings report. Pre-report estimates indicate increased US soybean and cotton acreage and reduced corn acres, compared to the USDA Outlook projections in February. Even with the recent decrease in soybean prices, relative prices between corn and soybeans still favor soybeans. Additionally, for many farmers the lower cost of soybean production (reduced capital at risk) make planting soybeans more attractive than either corn or cotton. This being said, producers are strongly encouraged to adhere to an established crop rotation to help maintain soil productivity and reduce weed pressure. Corn prices have entered a short-term downtrend. Harvest futures rallied from $3.81 on January 16 to a high of $4.12 on March 14, before closing below $4.00 on Friday. Price direction will hinge on South American Crop progress, US planted acreage, and trade negotiations. For those that took price action when corn was over $4.00 a wait and see approach may be warranted before taking additional action. For those that have not priced 2018 production, pricing some production with December futures above $3.95 should be considered. Soybeans have moved into a short-term downtrend November soybean futures peaked at $10.48 on March 7, 2018 and closed at $10.26 ½ on Friday. Selling matriculated due to overbought speculative money and concerns about potential trade disruptions with China. Given the tremendous uncertainty with China and trade, pricing 25-60% of 2018 production with soybean futures above $10.00 should be considered. Since March 5, December cotton futures have trended sideways, between cents. The market appears to be satisfied with trading in this range until more information is revealed about planting intentions in the US and abroad. Strong export demand continues to fuel the cotton market. July wheat prices have retreated 69 cents since early March. Price direction moving forward will be dictated by drought in the southern plains, spring planting intentions, and trade. Currently, wheat export sales are substantially behind the pace required to meet USDA s marketing year projection. Corn Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at Memphis, Northwest Barge Points, and Lower-middle Tennessee and strengthened at Northwest and Upper-middle Tennessee. Overall, basis for the week ranged from 11 under to 35 over the May futures contract with an average of even at the end of the week. May 2018 corn futures closed at $3.77 down 5 cents since last Friday. For the week, May 2018 corn futures traded between $3.69 and $3.82. Corn net sales reported by exporters from March 9-15 were within expectations with net sales of 57.9 million bushels for the 2017/18 marketing year and 0.5 million bushels for the 2018/19 marketing year. Exports for the same time period were down from last week at 54.1 million bushels. Corn export sales and commitments were 80% of the USDA estimated total annual exports for the (Continued on page 4) 3

4 Crop Comments by Dr. Aaron Smith 2017/18 marketing year (September 1 to August 31) compared to a 5-year average of 79%. Ethanol production for the week ending March 16 was million barrels per day, up 24,000 from the previous week. Ethanol stocks were million barrels, down 523,000 barrels. May/Jul and May/Dec future spreads were 8 and 22 cents, respectively. July 2018 corn futures closed at $3.85, down 6 cents since last Friday. In Tennessee, September 2018 corn cash forward contracts averaged $3.79 with a range of $3.70 to $4.00. December 2018 corn futures closed at $3.99, down 4 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2018 Put Option costing 29 cents establishing a $3.71 futures floor. Soybeans Average soybean basis weakened or remained unchanged at Northwest Barge Points, Memphis, Northwest, Lower-middle, and Upper-middle Tennessee. Basis ranged from 48 under to 9 over the May futures contract at elevators and barge points. Average basis at the end of the week was 25 under the May futures contract. May 2018 soybean futures closed at $10.28, down 21 cents since last Friday. For the week, May 2018 soybean futures traded between $10.09 and $ Net sales reported by exporters were within expectations with net sales of 27.9 million bushels for the 2017/18 marketing year and 5.1 million bushels for the 2018/19 marketing year. Exports for the same period were down from last week at 20.2 million bushels. Soybean export sales and commitments were 89% 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 94%. May soybean-to-corn price ratio was 2.73 at the end of the week. May/July and May/Nov future spreads were 11 and -2 cents, respectively. July 2018 soybean futures closed at $10.39, down 21 cents since last Friday. In Tennessee, Oct/Nov 2018 soybean cash contracts average $10.11 with a range of $9.83 to $ November 2018 soybean futures closed at $10.26, down 15 cents since last Friday. Downside price protection could be achieved by purchasing a $10.40 November 2018 Put Option which would cost 67 cents and set a $9.73 futures floor. November/December 2018 soybean-to-corn price ratio was 2.57 at the end of the week. Cotton Delta upland cotton spot price quotes for March 22 were cents/lb ( ) and 82.9 cents/lb ( ). Adjusted world price (AWP) decreased 1.2 cents to cents per pound. May 2018 cotton futures closed at cents, down 1.02 cents since last Friday. For the week, May 2018 cotton futures traded between and cents. Net sales reported by exporters were 4 (Continued on page 5)

5 Crop Comments by Dr. Aaron Smith down from last week with net sales of 338,400 bales for the 2017/18 marketing year and 147,500 bales for the 2018/19 marketing year. Exports for the same period were down from last week at 425,100 bales. Upland cotton export sales were 103% 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 89%. May/Jul and May/Dec cotton futures spreads were 0.39 cents and cents, respectively. July 2018 cotton futures closed at 82.22, down 0.76 cents since last Friday. December 2018 cotton futures closed at 77.66, down 0.62 cents since last Friday. Downside price protection could be obtained by purchasing a 78 cent December 2018 Put Option costing 4.62 cents establishing a cent futures floor. Wheat May 2018 wheat futures closed at $4.60, down 7 cents since last Friday. May 2018 wheat futures traded between $4.46 and $4.66 this week. May wheat-to-corn price ratio was Wheat net sales reported by exporters were within expectations with net sales of 9.7 million bushels for the 2017/18 marketing year and 6.0 million bushels for the 2018/19 marketing year. Exports for the week were up from last week at 17.4 million bushels. Wheat export sales were 90% of the USDA estimated total annual exports for the 2017/18 marketing year (June 1 to May 31), compared to a 5-year average of 97%. May/Jul and May/Sep future spreads were 16 cents and 32 cents, respectively. In Tennessee, June/July 2018 cash forward contracts ranged from $4.53 to $4.97 for the week. July wheat-to-corn price ratio was July 2018 wheat futures closed at $4.76, down 9 cents since last Friday. Downside price protection could be obtained by purchasing a $4.80 July 2018 Put Option costing 25 cents establishing a $4.55 futures floor. September 2018 wheat futures closed at $4.92, down 10 cents since last Friday. 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, March 16, 2018 Thursday, March 22, 2018 Commodity Contract Month Friday Monday Tuesday Wednesday Thursday Soybeans May ($/bushel) Jul Aug Sep Nov Jan Corn May ($/bushel) Jul Sep Dec Mar May Wheat May ($/bushel) Jul Sep Dec Mar Soybean Meal May ($/ton) Jul Aug Sep Oct Dec Cotton May ( /lb) Jul Oct Dec Mar Live Cattle Apr ($/cwt) Jun Aug Oct Dec Feeder Cattle Mar ($/cwt) Apr May Aug Sep Oct Market Hogs Apr ($/cwt) May Jun Jul Aug

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 Breakers 75-80% Boners 80-85% Lean 85-90% Bulls YG Heifers: Medium/Large Frame # lbs lbs lbs lbs Heifers: Small Frame #1-2 Prices on Tennessee Reported Livestock Auctions for the week ending March 23, lbs lbs lbs lbs Heifers: Medium/Large Frame # lbs lbs lbs lbs Cattle Receipts: This week: 10,192 (11) Week ago: 8,348 (10) Year ago: 4,632 (6) 7

8 Tennessee lbs. M-1 Steer Prices 2017, 2018 and 5-year average Tennessee lbs. M-1 Steers Prices 2017, 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, March 16, 2018 Thursday, March 22, 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 Video Sales & Loads Self-Reported and Self-Graded Livestock Markets East Tennessee Livestock Center - March 21, load of 60 out of 100 steers; BQA certified producer; est. wt. 825 lbs.; 95% L&M-1s, 5% L&M-2s; medium flesh; 100% Black/ BWF; $ load of 68 out of 78 heifers; BQA certified producer; est. wt. 735 lbs.; 95% M-1s, 5% M-2s; medium flesh; 85% Blk/BWF, 15% ChaX/Smoky; $ Browning Livestock Market - March 21, load of 62 Steers; L&M 1-2; est. wt. 862 lbs.; $ Hardin County Stockyard - March 21, load of 82 steers; est. wt. 616 lbs.; M&L-1s; 4-5 flesh; Blk/ BWF, RWF; $ load of 70 steers; est. wt. 775 lbs.; M&L-1; 5 flesh; Blk/BWF, RWF, ChaX; $ load of 63 steers; 842 lbs.; M&L-1; 5-6 flesh; Blk/BWF, RWF & ChaX; $ Video Board Sale and Graded Sales East Tennessee Livestock Center, Sweetwater, TN Graded Feeder Sale Report for Friday Mar 16, 2018 Cattle Receipts: 1111 For complete report: Self-Reported and Self-Graded Livestock Markets 3/20/18 TN Livestock Producers Fayetteville Receipts: 486 (188 graded & grouped) Steers: Med & Lg 1-2 Heifers: Med & Lg lbs lbs lbs lbs lbs lbs lbs lbs lbs Bulls: Med & Lg lbs lbs lbs lbs lbs

10 Beef Industry News Featured Article from DROVERS Oregon Beef Packer Closes After 120 Years Wyatt Bechtel March 21, 2018 A beef packing plant in Oregon specializing in grass fed and organic beef has shut its doors after 120 years of business. Prior to the USDA investigation there were also fines imposed on Bartels Packing by the Oregon Department of Environmental Quality in July 2013 for $15,000 after wastewater discharged into a ditch flowing towards nearby wetlands. Bartels Packing closed their family-owned plants near Eugene on March 14. Two days later employees received a letter from president Chris Bartels saying they were no longer employed. As you may know, the recent performance of the company has been disappointing, Bartels wrote. We have experienced significant difficulties over the past several months which have caused our business to falter including, among other things, a continuing decline in sales, accumulation of finished goods inventory, the recent and unexpected loss of one of our largest customers, the coming due of our line of credit and a shortage of sufficient working capital necessary to operate as a viable business. Bartels Packing employed 142 people through separate harvest and packing facilities. The Bartels had attempted to sell the company prior to closing. We regret that under the circumstances we were not able to provide you with advanced notice of the closings, Bartels letter read. We believed that giving an earlier notice would have jeopardized our ongoing efforts and precluded us from obtaining new business and finding new financing, as well as our efforts to negotiate and close the sale. The packing plant offered branded beef products under the Bartels Farms label. Products included grass fed natural beef and USDA certified organic beef. According to the Bartels Farms website the family had been in the meat packing business in Oregon since In recent history Bartels Packing had been under investigation by the U.S. Department of Agriculture forcing a temporary plant shut down in 2016 for several weeks. The investigation found that cattle had been inhumanely treated when they cattle were improperly stunned with a captive bolt gun prior to slaughter. Department of Agricultural and Resource Economics 314 Morgan Hall 2621 Morgan Circle arec.tennessee.edu USDA / Tennessee Department of Agriculture Market News Service