Farmers Report

LIVESTOCK COMMENTS

FED CATTLE
Fed cattle traded $2 higher in the South compared to last week. Prices in the South were mainly $180 while dressed prices mainly $293 to
$295.
The 5-area weighted average prices thru Thursday were $186.74 live, up $3.75 compared to last week and $293.98 dressed, up $2.73 from a
week ago. A year ago, prices were $140.65 live and $227.51 dressed.
What do cattle markets and Usain Bolt have in common? They set records. The answer could have been, they race to the top, but setting
records is what cattle prices have been doing lately. It is unlikely Usain Bolt could set records at the pace the finished cattle market is doing it.
The higher finished cattle prices in the heat of summer is clear evidence of the leverage held by cattle feeders over the packing industry. It is
also clear that packers are willing to compete to secure inventory to maintain line production. These are all welcome circumstances to cattle
feeders who continue to pay higher prices for feeder cattle. Higher finished cattle prices are necessary to maintain a positive margin.
BEEF CUTOUT
At midday Friday, the Choice cutout was $302.54 down $0.02 from Thursday and down $3.60 from a week ago. The Select cutout was
$276.59 up $1.88 from Thursday and down $1.21 from last week. The Choice Select spread was $25.95 compared to $28.34 a week ago.
There are always winners and losers. Some people do not believe this statement, because some people would say they never lost but rather
just ran out of time. However, the packer appears to be on the losing end of cattle and beef trade as they are squeezed from both ends. In the
midst of paying more for finished cattle and wholesale beef prices declining, the packer is experiencing smaller and smaller margins each
week. Historically, these types of price environments have led to packing house closures and consolidation as the competition increases. Typically,
the packers with the deepest pockets win the war. History may repeat itself from this perspective the next several years. However, many
of the new beef packing facilities are working under a branded beef program and many are producer owned, which means a good quantity of
the daily slaughter needs will be coming from producers contracted to deliver animals. This more vertically integrated model may be more
insulated from the competitive environment.
OUTLOOK
Based on Tennessee weekly auction price averages, steers prices were steady to $3 higher compared to last week while heifer prices were
steady to $4 higher compared to a week ago. Slaughter cow prices were $1 to $2 higher than last week’s weighted average price while bull
prices were steady compared to the previous week. Given the latest price data for Tennessee, a 550 pound steer is valued at $1,375 per head
while the heifer mate is valued just shy of $1,200 per head. These prices represent a $75 and $68 per hundredweight price increase for steers
and heifers, respectively, compared to the start of the year. Thus, 550 pound steer values have increased more than $400 per head since the
beginning of the year while the same weight heifer value has increased about $375 per head. These prices and per head values are extremely
advantageous for cow-calf producers who have been burdened by high input prices and low cattle prices the past several years. However, it
also means any heifers retained for breeding have a lofty price tag since they could be sold in the current market. From the stocker producer
and feedlot side, higher cattle prices simply mean there is an increase in financial risk as there is a higher capital outlay for seemingly the
same return per head. At the same time, there is a lower rate of return on the capital, and if it is borrowed capital then it is likely at a higher
interest rate than in the past several years. There are certainly opportunities for margin operators in this high price environment, but operating
naked without any price protection is not an appropriate alternative. Switching gears to breeding stock. Slaughter cow prices will likely begin
to soften moving into August and September, which means some producers need to move these females in the near term. Alternatively, the
bred heifer market is expected to strengthen as producers look to grow the cattle herd in certain regions of the country.
The July cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of July 1, 2023 totaled
11.20 million head, down 1.8% compared to a year ago, with the pre-report estimate average expecting a 2.4% decline. June placements in
feedlots totaled 1.68 million head, up 2.7% from a year ago with the pre-report estimate average expecting placements down 1.9%. June marketing’s
totaled 1.96 million head down 5.0% from 2022 with pre-report estimates expecting a 4.8% decrease in marketings. Placements on
feed by weight: under 700 pounds up 4.7%, 700 to 899 pounds up 1.2%, 900 pounds and over up 1.9%.

CROP COMMENTS

Corn, cotton, soybeans, and wheat were up for the week.
Many factors are influencing commodity prices. Recently, movements in corn, soybeans, wheat, and cotton prices have been driven by the
Russia/Ukraine conflict, US acreage estimates, and weather concerns across a large portion of the Corn Belt, and this is likely to remain the
principal focus of markets into August. As of July 18, 2023, the percentage of soybeans in Moderate Drought (D1), Severe Drought (D2), Extreme
Drought (D3), and Exceptional Drought (D4) was 1%, 6%, 13%, and 30% (USDA-Ag in Drought).
There are always numerous factors impacting price direction simultaneously. An interesting trend that has potential repercussions for soybean
exports has been the movement in currency exchange rates in 2023. Soybean exports are largely a three-country game. For the 2023/2024
marketing year, Brazil is expected to contribute 56% of global soybean exports, the US is projected to contribute 31% of global soybean exports,
and China is projected to account for 59% of global soybean imports. As such, the prevailing currency exchange rates between the three
countries are an important factor. Since the start of 2023, the Brazilian Reais (BRL) has increased 11.6% compared to the United States Dollar
(USD) and the USD has appreciated 3.3% compared to the Chinese Yuan Renminbi (CNY). For example, on January 3 a bushel of soybeans
worth $14.50 USD would be 78.67 BRL, on July 14 that same bushel of soybeans at $14.50 USD would be 69.58 BRL. Over this time, the
change in currency values would be supportive to Chinese purchases of US soybeans over Brazilian soybeans, else being equal. However,
supplies of soybeans in Brazil and the US are largely minimizing this potential affect. Brazil has record supplies, and based on current prices
could have record plantings this fall, and the US has lower acreage (83.5 million acres planted) than initially anticipated, lower potential yields
due to drought, and limited endings stocks (230 million bushels) for the 2022/2023 marketing year. Moving forward trends in exchanges rates
could play a role in determining the source of Chinese soybean purchases. However, we will have to wait and see how production estimates for
both countries change between now and the end of 2023.