Almanca’s Best Days for the Week
by Aaron Smith, Crops Marketing Specialist June 9, 2023
Corn and cotton were down; soybeans and wheat were up for the week.
Dryness has crept into Tennessee. As of June 8th, the U.S. drought monitor indicated that 49% of Tennessee was abnormally dry and 9% was in moderate drought. However, the NOAA precipitation forecast for June 10 to June 17 projects 2 to 5 inches of rain in the next seven days for most of Tennessee. Additionally, rain in the seven-day forecast is projected for a large portion of the Corn Belt, with greater quantities in the southern portions. If realized, the rains should help alleviate the abnormally dry or moderate drought conditions, that currently cover a large portion of the primary US corn and soybean producing regions.
Many producers use cash-forward contracts to secure a price for harvest or post-harvest delivery during the growing season. However, producers should disaggregate the offered cash forward contract price into a futures price and basis price to determine if an alternative pricing method is more beneficial given their expected local markets. For example, harvest cash forward contracts at West Tennessee elevators and barge points, on June 8, was $5.20/bu and the December futures contract closed at $5.33/bu indicating a negative basis of 13 cents. Whether a short hedge or hedge-to-arrive (HTA) contract would be preferable to a cash-for-ward contract will depend on what your harvest basis expectation is. Disaggregating the cash price allows you to evaluate two factors that contribute to the price and select the appropriate marketing tools to manage risk and obtain a higher net price.
Global soybean ending stocks from the 2022/23 to 2023/24 marketing year are projected up 811 million bushels a 21.8% year-over-year increase. A great deal of uncertainty remains for the 2023 production year, but based on current USDA estimates further weakness in prices could occur. The recent WASDE increases the likelihood of further spreading between new crop and old crop cash prices.
by Andrew Griffith,
Livestock Marketing Specialist June 9, 2023
Fed cattle traded $7 to $8 higher compared to last week on a live basis. Prices in the South were mainly $185 to $186 while dressed prices were mainly $299 to $300.
The 5-area weighted average prices thru Thursday were $189.06 live, up $7.74 compared to last week, and $299.14 dressed, up $9.48 from a week ago. A year ago, prices were $140.52 live and $226.02 dressed.
If $200 feeder cattle are good then how good is $200 finished cattle? The finished cattle market continues to set record highs on a weekly basis and $200 per hundredweight does not appear to be out of reach given the huge run in prices this week. It was only in March when the CME feeder cattle index was trading in the upper $180s, and now the market has finished cattle trading at that price level. This is simply a wild and sporadic time in cattle markets that can be expected to be filled with volatility. These price levels may turn out to be perfectly fine, but it sure seems logic has been thrown out the window in favor of wild and reckless. It is difficult to know what “harm” will come with all of this “good”.
At midday Friday, the Choice cutout was $330.98 up $2.25 from Thursday and up $22.37 from a week ago. The Select cutout was $306.57 up $2.47 from Thursday and up $16.32 from last week. The Choice Select spread was $24.41 compared to $18.36 a week ago.
Beef prices are driven by supply and demand. Sometimes there are shifts in supply or demand, and sometimes they both shift at the same time, which influences price. Most of the time there are shifts in the quantity supplied or the quantity demanded, which also results in a price change. What we know in the current market is that price has certainly changed. It would appear beef demand actually changed post-coronavirus when compared to the previous time period. Additionally, it would appear supply has shifted due to natural events and the cost of production. In the short term, beef supply is being impacted by slaughter rates and slaughter weights. Total steer and heifer slaughter continue to run below year-ago levels, but strong boxed beef prices incentivize growing animals to a larger weight. In recent weeks, cattle dressed weights have been catching up to year-ago weights, and it is likely cattle feeders will attempt to push finished weights higher than last year’s weights. This is the only way to influence beef production in the short term.
Based on Tennessee week-ly auction price averages, steer prices were $5 to $6 higher this week compared to last week while heifer prices were $4 to $6 higher compared to the previous week. Slaughter cow prices were $4 to $5 higher compared to last week while slaughter bull prices were steady to $2 higher compared to a week ago. The one clear aspect of this market is that a lower quantity of cattle available to enter the feedlot has resulted in prices increasing for all weight classes of calves and feeder cattle. Maybe the most interesting aspect of the market is the regional differences that exist due to climatic conditions. For example, the Southeast United States has favorable moisture conditions relative to the Southern and Central Plains, where drought has been persistent. In the Southeast, there are several producers looking to expand herd size to capitalize on the extremely high calf and feeder cattle prices. However, in regions of the country that are navigating drought issues, there are practically no thoughts concerning herd expansion. In fact, open heifers are more valuable than bred heifers in some of these regions, because there is simply little to no demand for these females. Thus, there is a clear dichotomy when comparing regions and their herd expansion intentions due to the most basic production fundamentals. At the beginning of 2023, there were thoughts that heifer retention would increase compared to the previous year with most of that coming in the second half of the year. However, those hopes have diminished, and it is almost certain the beef cattle breeding herd will contract moving into 2024. This will simply push calf and feeder cattle prices higher and support them longer. Despite the positive trend in calf prices, it does not mean producers should change cow culling practices. Producers should consider the salvage value of cows and the cost of replacement with a younger female.
ASK ANDREW, TN THINK TANK
A question was asked this week concerning selling out a commercial cow herd in the near term or holding on for another calf crop while transitioning to focus more on a different sector. This question may take many forms including older producers who are looking to exit the industry for retirement or maybe even producers who need to address infrastructure issues such as pasture renovation or major fence replacement. Thus, is now a good time to sell everything and focus on the next step? The answers will differ across producers, but the market will be offering a nice value for the next 12 to 24 months for most classes of cattle. Many animals will be over-valued during this time, which means it would be a good time to sell them. The real question for producers to ask is if the changes they are considering will create a greater value a few years down the road. If the answer is yes then producers should put pencil to paper to see how much benefit they can expect. The current market is providing opportunities for certain classes of animals.
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FRIDAY’S FUTURES MARKET CLOSING PRICES
Friday’s closing prices were as follows: Live/fed cattle –June $178.23 -0.55; August $171.85 -0.40; October $174.80 +0.10; Feeder cattle –August $239.00+0.35; September $241.70 +0.23; October $243.50 +0.05; Novem-ber $244.58 +0.00; July corn closed at $6.04 down 6 cents from Thursday.