Weekly Livestock Comments, May 3, 2013

FED CATTLE: Fed cattle sold mainly $2 higher compared to last week on a live basis. Prices on a live basis were primarily $128 to $130 while dressed prices were $206 to $207. The 5-area weighted average prices thru Thursday were $129.02 live, up $1.77 from last week and $206.56 dressed, up $3.96 from a week ago. A year ago prices were $120.16 live and $190.90 dressed. Fed cattle cash prices continued to strengthen as the futures market tried to close the gap on an already strong $5 to $6 basis. Packers have been willing to pay higher prices the past couple of weeks as boxed beef prices have accelerated and margins have been improving. Feedlot margins have improved, and feeders appear to be willing to move cattle at current prices before the market starts its seasonal summer decline. The big question is how long will these prices hold on since we are a little behind the curve.

BEEF CUTOUT: At midday Friday, the Choice cutout was $200.85 up $0.27 from Thursday and up $9.04 from last Friday. The Select cutout was $190.27 down $0.37 from Thursday and up $5.81 from last Friday. The Choice Select spread was $10.58 compared to $7.35 last week. The industry has consistently asked if and when the Choice cutout would top the $200 level. The $200 level was a resistance point all of 2012 and has struggled the first four months of 2013. However, the Choice cutout made an impressive price movement this week as seasonal demand seems to have picked up a few notches. Not to be out done, Select cuts also gained some traction during a time period when most of the attention is focused on Choice cuts due to the impending grilling season. Some consumers in the nation have not thought about the grilling season as snow has continued to fall this week and a cold front has swept across the nation the latter part of the week. This might bode well for the industry and indicate that the cutout may have potential to move higher. The Choice Select spread continues to widen as is expected. The potential for it to continue to widen is strong as calf fed animals start to come to market and flood the beef counter with select grade beef. This will put pressure on the Select cuts widening the Choice Select spread. However, the industry hopes the spread widens due to the strengthening of Choice meat prices instead of Select meat faltering. TENNESSEE AUCTIONS: On Tennessee auctions this week, feeder steers and bulls were steady to $4 higher. Heifers were $3 to $4 higher. Slaughter cows were mostly steady with bulls steady. Average receipts per sale were 566 head on 11 sales compared to 583 head on 12 sales last week and 542 head on 12 sales last year.

OUTLOOK: Lightweight stockers made some positive price improvements this week, but it does not compare to our usual spring price movements. It is unlikely the spring price jump will ever show its face this year, but it is encouraging to see prices strengthen. Stocker producers may show a little more interest in purchases as the green grass actually starts to grow, but purchases this late can change the stocker producer’s normal marketing plans. Stocker producers will either have to decide to market their current purchases at lighter weights than usual when trying to capitalize on the normally strong late July and early August feeder cattle market, or producers can decide to market later in the year when prices tend to be slightly weaker. Yearlings continue to hold their own with little to no price movement as they will continue to struggle to get a foot hold until feed prices provide them a breather. Yearling cattle prices will likely look more appealing this fall, but that is a long time to wait for price improvements. Expectations of higher cattle prices will remain highly weather dependent as a drought in 2013 could result in continued herd liquidation and high feed prices. Very few folks in the Midwest are concerned about drought right now as precipitation and cool temperatures continue to persist in many of the primary corn producing states. The panic level is still fairly low at this point even though corn plantings are severely lagging the yearly average. Another failure in corn production could really put the cattle industry on edge as continued high feed costs will result in a prolonged pressure on feeding margins. These weather conditions will also play a major role in heifer retention and the replacement heifer market. Cull cow prices continued to follow the seasonal pattern of moving northward. This pattern tends to hold through the month of May.

TECHNICALLY SPEAKING: Based on Thursday’s closing prices, June closed at $123.65. Support is at $123.33, then $122.68. Resistance is at $123.98, then $124.63. The RSI is 57.68. August closed at $123.88. Support is at $123.72, then $123.37. Resistance is at $124.07, then $124.42. The RSI is 55.54. October closed at $127.00. Support is at $126.85, then $125.95. Resistance is at $127.18, then $127.20. The RSI is 52.57. May feeders closed at $140.60. Support is at $140.23, then $139.58. Resistance is at $140.88, then $141.53. The RSI is 45.05. August feeders closed at $149.65. Support is at $149.28, then $148.66. Resistance is at $149.91, then $150.53. The RSI is 49.65. October feeders closed at $152.95. Support is at $152.45, then $152.40. Resistance is at $153.23, then $154.65. The RSI is 49.23. Friday’s closing prices were as follows: Live/fed cattle – June $121.83 -1.83; August $121.98 -1.90; October $125.30 -1.70; Feeder cattle – May $138.78 -1.83; August $147.50 -2.15; October $151.25 -1.70; November $152.13 -2.15; May corn closed at $7.00 up $0.02 from Thursday.

Source: Dr. Andrew P. Griffith, University of Tennessee Instuitute of Agriculture