Tennessee Market Highlights

Transcription

1 Tennessee Market Highlights January 19, 2018 Number: 3 Trends for the Week Compared to a Week Ago Slaughter Cows $1 to $3 higher Slaughter Bulls $2 higher Feeder Steers Less than 650 lbs, $1 to $5 higher; 650 lbs and over, unevenly steady Feeder Heifers Less than 600 lbs, steady to $2 lower; 600 lbs and over, $1 to $5 higher Feeder Cattle Index Wednesday s index: Fed Cattle The 5-area live price of $ is up $0.54. The dressed price was not available. Corn March closed at $3.52 a bushel, up 6 cents since last Friday. Soybeans March closed at $9.77 a bushel, up 17 cents since last Friday. Wheat March closed at $4.22 a bushel, up 2 cents since last Friday. Cotton March closed at cents per lb, up 1.74 cents since last Friday. Livestock Comments by Dr. Andrew P. Griffith FED CATTLE: Fed cattle trade was not established at press with bid prices on a live basis at $118 while asking prices on a live basis were $125. The 5-area weighted average prices thru Thursday were $ live, up $0.54 from last week and $ dressed, up $1.08 from a week ago. A year ago prices were $ live and $ dressed. Fed cattle trade was slow to be established this week as packers and feedlots were separated by as much as $7 on a live basis. This price separation was largely due to packers holding on to prices from last week s trade and early week futures market prices. However, cattle feeders were basing ask prices on late week futures which were $3.80 higher than the close on Tuesday and more than $4.50 higher than the close last Friday. Given the futures close for the week, cattle feeders hold a little leverage over packers in the short term. Packers that are not short bought will likely pass on offerings this week and give it another shot next week. Cattle feeder s leverage should last as long as the futures price holds. BEEF CUTOUT: At midday Friday, the Choice cutout was $ down $0.58 from Thursday and down $3.56 from last Friday. The Select cutout was $ down $0.48 from Thursday and down $1.89 from last Friday. The Choice Select spread was $4.72 compared to $6.39 a week ago. Disposable income is a key factor in beef demand. Increases in disposable income generally result in consumers purchasing more beef. Many consumers move to beef from poultry and pork products while others trade lower valued beef products for higher valued products when disposable income increases. Alternatively, declines in disposable income generally result in the consumers moving the opposite direction. There are two reasons why this discussion is important right now. First is energy cost. February crude oil futures are trading near $63 per barrel which is nearly a $20 per barrel increase since June Higher crude oil prices have pushed fuel prices higher which eats into disposable income. From the natural gas and electricity standpoint, it is increased consumption that is eating into disposable income due to cold temperatures. Alternatively, the new tax code reduces Federal income tax withholdings for many consumers which will result in an increase in disposable income starting in February. Thus, it all may even out in the end or it could influence the beef market. OUTLOOK: The cold temperatures and snow put a damper on calf and feeder cattle marketings this week. Based on limited receipts at Tennessee weekly auction markets, steers weighing less than 650 pounds were $1 to $5 higher than last week while steers 650 pounds and heavier were unevenly steady. Heifers weighing less than 600 pounds were steady to $2 lower compared to last week while heifers weigh 600 pounds and heavier were $1 to $5 higher than last week s weekly auction average. Slaughter cow prices have already started to seasonally strengthen as prices were $1 to $3 higher compared to last week. It has been extremely difficult to get a handle on Tennessee auction market prices since the beginning of the year due to the holidays, cold temperatures, and winter precipitation. However, there is a good chance calf and feeder cattle marketings will pick up this coming week as temperatures are expected to escalate and only one day of precipitation is predicted in the next seven days. At this time, there is no reason to expect an increase or decrease in calf and feeder cattle prices. One piece of information to keep an eye on is the drought monitor. Nearly 61 percent of the country is experiencing abnormal dryness to extreme drought which is 18 percentage points higher than the end of November. (Continued on page 2)

2 Livestock Comments by Dr. Andrew Griffith (Continued from page 1) The drought areas include the Great Plains and much of the Southeast with the hardest hit parts being in the Oklahoma and Texas panhandles. These drought conditions will continue to weigh on wheat grazing country which is not supportive of calf prices. However, the poor grazing conditions in this area have been persistent through much of the late fall and early winter months and are largely priced into today s market. The market may have to make it through the first quarter of 2018 before significant price improvement occurs. However, producers should not be expecting a repeat of 2017 where prices strengthened from January through June and then held steady for much of the second half of the year. The market continues to slowly seek the historical seasonal price trend and decision makers should consider this. ASK ANDREW, TN THINK TANK: A question was received this week concerning the 2018 cow-calf budget developed for Tennessee cattle producers. Based on the question received, it was evident the person was not aware of all the budget resources available. Thus, it may be prudent to share this with producers and others who may find the University of Tennessee Extension budgets useful. Enterprise budgets for row crop, cow-calf, and stocker production can be found on the following website by selecting the appropriate thumbnail. As it relates to cattle budgets, budgets can be downloaded in PDF format or Excel format. The Excel file allows the user to customize the budget for his or her specific operation or use. The flexibility provided by the Excel version makes this tool appropriate for use by operations outside of Tennessee also. 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 February $ ; April $ ; June $ ; Feeder cattle January $ ; March $ ; April $ ; May $ ; March corn closed at $3.53 down $0.01 from Thursday. Milk Futures Thursday January 18, 2017 Month Class III Close Class IV Close Jan Feb Mar Apr May Average Daily Slaughter Cattle Hogs Number of head This week (4 days) 117, ,500 Last week (4 days) 118, ,750 Year ago (4 days) 102, ,000 This week as percentage of Week ago (%) 100% 95% Year ago (%) 115% 106% 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 up for the week. Prices were up this week after last week s USDA reports release. Export sales remain important for old crop prices. Currently, corn, soybean, and wheat sales are behind the export sales pace required to meet USDA s marketing year projection. Corn export sales commitments are currently 2% behind the 5-year average, while wheat and soybeans lag the 5-year average by 6% and 14%, respectively. Cotton export commitments are currently exceeding the 5-year average pace by 11%. Closing the export sales gap for corn, soybeans, and wheat will be essential to avoid further buildup of domestic stocks. Cotton exports continue to fuel the nearby futures rally, however, harvest 2018 futures have been resistant to moving beyond cents. New crop relative prices between corn, soybean, and cotton will be closely followed as producers gear up for 2018 planting. Corn Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis and Upper-middle Tennessee and weakened at Northwest Barge Points, Lower-middle, and Northwest Tennessee. Overall, basis for the week ranged from 16 under to 21 over the March futures contract with an average of 5 over at the end of the week. March 2018 corn futures closed at $3.52, up 6 cents since last Friday. For the week, March 2018 corn futures traded between $3.46 and $3.54. Corn net sales reported by exporters from January 5-11 were above expectations with net sales of 74.3 million bushels for the 2017/18 marketing year and 0.09 million bushels for the 2018/19 marketing year. Exports for the same time period were down from last week at 30.0 million bushels. Corn export sales and commitments were 59% 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 61%. Ethanol production for the week ending January 12 was million barrels per day, up 65,000 from the previous week. Ethanol stocks were million barrels, up 24,000 barrels. Mar/May and Mar/Dec future spreads were 8 and 33 cents, respectively. May 2018 corn futures closed at $3.60, up 6 cents since last Friday. In Tennessee, September 2018 corn cash forward contracts averaged $3.60 with a range of $3.50 to $3.85. December 2018 corn futures closed at $3.85, up 5 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2018 Put Option costing 26 cents establishing a $3.64 futures floor. Soybeans Average soybean basis strengthened or remained unchanged at Memphis, Lower-middle, Upper-middle, and Northwest Tennessee and weakened at Northwest Barge Points. Basis ranged from 35 under to 20 over the March futures contract at elevators and barge points. Average basis at the end of the week was 3 under the March futures contract. March 2018 soybean futures closed at $9.77, up 17 cents since last Friday. For the week, March 2018 soybean futures traded between $9.61 and $9.82. Net sales reported by exporters were above expectations with net sales of 45.6 million bushels for the 2017/18 marketing year and 10.6 million bushels for the 2018/19 marketing year. Exports for the same period were down from last week at 43.3 million bushels. Soybean export sales and commitments were 73% 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 87%. March soybean-to-corn price ratio was 2.78 at the end of the week. Mar/May and Mar/Nov future spreads were 11 and 19 cents, respectively. May 2018 soybean futures closed at $9.88, up 16 cents since last Friday. In Tennessee, Oct/Nov 2018 soybean cash contracts average $9.78 with a range of $9.54 to $9.94. November (Continued on page 4) 3

4 Crop Comments by Dr. Aaron Smith 2018 soybean futures closed at $9.96, up 13 cents since last Friday. Downside price protection could be achieved by purchasing a $10.00 November 2018 Put Option which would cost 54 cents and set a $9.46 futures floor. November/December 2018 soybean-to -corn price ratio was 2.59 at the end of the week. Cotton Delta upland cotton spot price quotes for January 18 were cents/lb ( ) and cents/lb ( ). Adjusted world price (AWP) increased 3.24 cents to cents per pound. March 2018 cotton futures closed at cents, up 1.74 cents since last Friday. For the week, March 2018 cotton futures traded between and cents. Net sales reported by exporters were up from last week with net sales of 275,100 bales for the 2017/18 marketing year and 104,600 bales for the 2018/19 marketing year. Exports for the same period were up from last week at 289,900 bales. Upland cotton export sales were 82% 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 71%. Mar/May and Mar/Dec cotton futures spreads were 0.37 cents and cents, respectively. May 2018 cotton futures closed at 83.79, up 1.83 cents since last Friday. December 2018 cotton futures closed at 75.77, up 0.43 cents since last Friday. Downside price protection could be obtained by purchasing a 76 cent December 2018 Put Option costing 4.69 cents establishing a cent futures floor. Wheat In Memphis, old crop cash wheat ranged from $3.91 to $4.31. March 2018 wheat futures closed at $4.22, up 2 cents since last Friday. March 2018 wheat futures traded between $4.13 and $4.27 this week. March wheat-to-corn price ratio was Wheat net sales reported by exporters were below expectations with net sales of 5.6 million bushels for the 2017/18 marketing year and 14 million bushels for the 2018/19 marketing year. Exports for the week were up from last week at 15.5 million bushels. Wheat export sales were 75% 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 81%. Mar/May and Mar/Jul future spreads were 13 cents and 26 cents, respectively. May 2018 wheat futures closed at $4.35, up 1 cent since last Friday. In Tennessee, June/July 2018 cash forward contracts ranged from $4.30 to $4.76 for the week. July 2018 wheat futures closed at $4.48, up 2 cents since last Friday. Downside price protection could be obtained by purchasing a $4.50 July 2018 Put Option costing 23 cents establishing a $4.27 futures floor. 4 (Continued on page 5)

5 Crop Comments by Dr. Aaron Smith 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, January 12, 2017 Thursday, January 18, 2018 Commodity Contract Month Friday Monday Tuesday Wednesday Thursday Soybeans Jan 9.44 ($/bushel) Mar May Jul Aug Sep Corn Mar ($/bushel) May Jul Sep Dec Mar Wheat Mar ($/bushel) May Jul Sep Dec Soybean Meal Jan 309 ($/ton) Mar May Jul Aug Sep 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 January 19, 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: 1,278 (3) Week ago: 7,757 (11) Year ago: 11,281 (11) 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, January 12, 2017 Thursday, January 18, 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 Video Sales & Loads Self-Reported and Self-Graded Livestock Markets Lower Middle Tennessee Cattlemens Video Board Sale Feeder Cattle Weighted Average Report for 01/12/2018 Receipts: 833 For complete report: Graded Sales East TN Cattle Alliance Graded Feeder, Farmers Livestock Greeneville, TN Weighted Average Report for Thursday Jan 18, 2018 Cattle Receipts: 449 Feeder Steers: 248 Feeder Heifers: 201 For complete report: East Tennessee Livestock Center, Sweetwater, TN Weighted Average Report for Friday Jan 12, 2018 Cattle Receipts: 797 Graded Steers and Heifers, Blk, Bwf and Char. For complete report: Warren Co. Livestock Graded Sale, McMinnville, TN Weighted Average Report for Wednesday Jan 10, 2018 Cattle Receipts: 1155 For complete report: 9

10 Beef Industry News Featured Article from Feedstuffs JBS finds buyer for Five Rivers Cattle Feeding Krissa Welshans Jan 18, 2018 JBS S.A. announced Jan. 17 that its subsidiary, JBS USA Food Co., has entered into an agreement to sell the totality of Five Rivers Cattle Feeding's feedlot operations in the U.S. to affiliates of Pinnacle Asset Management LP for approximately $200 million, including the market value of silage and grain inventories at closing, and subject to adjustments by working capital variation also at closing. Coupled with the acquisition of Five Rivers U.S. shares, Pinnacle also agreed to sign a long-term contract to supply cattle to JBS in North America. JBS said the conclusion of the transaction is subject to the usual regulatory approvals and adjustments, including corporate approvals, the buyer securing the relevant funding and approval by U.S. antitrust authorities. The company also said it will use a portion of the proceeds to further reduce debt in Brazil, subject to its stabilization agreement. Five Rivers Cattle Feeding is the largest cattle feeding operation in the world, with roots in the U.S. dating back to the 1920s. The transaction includes 11 feedyards across Arizona, Colorado, Idaho, Kansas, Oklahoma and Texas, with a feeding capacity of more than 900,000 head of cattle, and a long-term agreement to supply cattle to JBS USA beef processing plants. The current Five Rivers management team will remain in place, led by president and chief executive officer Mike Thoren, to ensure business continuity and build upon Five Rivers strong track record of innovation and stewardship. The sale of the Five Rivers Cattle Feeding assets and farms is a strategic move that will allow JBS USA to more efficiently deploy working capital and focus on the company s core food and valueadded products businesses, said Andre Nogueira, CEO of JBS USA. The transaction concludes the divestment program previously announced and unanimously approved by the JBS S.A. board of directors and more favorably positions the company for future opportunities. He continued, The long-term partnership with Pinnacle will ensure JBS USA s continued ability to produce high-quality beef products -- including natural, certified humane, raised without antibiotics, source-verified and traditional products -- enjoyed by customers and consumers around the world. Jason Kellman, managing partner and chief investment officer of Pinnacle, said the acquisition strengthens Pinnacle's strategic path of investment and development of its global, diversified physical commodity platform. We are excited to work closely with our operating partner, Arcadia Asset Management, and strategic partner, Ospraie Management, to support Five Rivers talented management team, he said. JBS divestment update The announcement was made as part of an update on the progress of the company s divestment program, wherein JBS said the sale of the majority of the assets comprised by the divestment program was concluded in On July 14, 2017, the company entered into an agreement to sell the Five Rivers Cattle Feeding feedlot operations in Canada for $50 million (Canadian; approximately $40 million U.S.). On Sept. 11, 2017, Moy Park was sold to Pilgrim's Pride Corp., which is controlled by JBS, for approximately 1.0 billion (enterprise value). On Oct. 26, 2017, JBS concluded the sale of its shareholding interest in Vigor Alimentos S.A. for approximately 1,112 million reals (enterprise value). These transactions were in addition to the sale of JBS's beef operations in Argentina, Paraguay and Uruguay, which were closed on July 31, 2017, for $300 million (U.S.) plus price adjustment after closing. JBS said a substantial portion of the proceeds received from these asset sales was used to make extraordinary debt amortization. As a result of the divestment program and the robust cash generation during the period, the company's leverage ratio (net debt-to-ebitda) decreased significantly from 4.16x at the end of the second quarter of 2017 to 3.42x at the end of the third quarter of The company said the results reached in 2017 clearly demonstrate a successful implementation of the divestment and deleveraging strategy defined by management. "JBS has been strengthened by this divestment process and has increased liquidity. We were able to sell the assets for the value we expected, while cash generation has been very strong during the period," JBS CEO José Batista Sobrinho said. Department of Agricultural and Resource Economics 314 Morgan Hall 2621 Morgan Circle arec.tennessee.edu USDA / Tennessee Department of Agriculture Market News Service