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Cattle placements jump-Rich Nelson

Live Cattle: USDA’s survey of feedlots found placements, the number of new calves and feeders entering feedlots, were 9.9% larger than last year in April. This was above the trade’s expectation of a 4.5% increase. Two factors are responsible. Record high cash cattle prices were posted in the first full week of the month. Cattle feeders were bulled up. The second factor was forage quality in the Plains. In the weight breakdown we see that placements of cattle under 600 lbs increased a large 23% over last year. Those light calves and stockers are typically the ones that spend some time on summer pasture before going to the feedlot. With drought conditions damaging forage, and feedlots beckoning with record prices, producers responded. Cattle placed in April finish out from September through November so this would normally be bearish the October. These lighter calves though will not finish out until late November. That could put pressure on the December. With that in mind, we will exit our December/June spreads Monday morning. It came very close to our 12.17 objective today but that looks out of bounds for next week.

Marketings: Cattle feeders marketed 2.7% fewer finished cattle in April than the previous year. That was close to expectations and therefore neutral. Keep in mind with one less marketing day in this year’s April offset the marketing number by 3.7%. Putting that back in and it implied unadjusted marketings at 1.0% higher. That fits in with general supply projections. In the coming weeks look for slaughter levels to balloon as much as 6% to 7% larger than last year. That will come as we work off those large placements from back in December. So we have large supplies hitting in a few weeks and will have a little oversupply hitting after summer.

 

Price Impact: Today’s report will not affect our bearish summer expectations. We may have to bring down our bullish expectations for prices in October and December a little. It will not stop the bull rally which will start after this summer though…Rich Nelson

 

Working Trade:

 

  • (03/01) Bought December/sold June 5.17, risk 9.50, exit at market. Closed 11.85.
  • (03/29) Bought August 116 put/sold 122 call/sold 106 put -1.42, risk +4.00, objective +6.50. Closed +6.32.
  • (04/07) Bought December/sold June 5.70, risk 9.50, exit at market. Closed 11.85.
  • (04/14) Sold 118 June call 2.00, risk to .80, objective 0. Closed .05.

Fundamental Support

It appeared that yesterday was the profit-taking day and that today traders are more concerned with future weather. Today’s weather update was even wetter that previous runs. All ranges of the forecast added rains from now all the way out to the end of the month. There is a high pressure ridge expected to start June 1st but that is still too far away to have much faith in. With downtrend lines in old and new crop taken out this week and weather turning even wetter, there is something bullish for everyone. Technical traders will notice they can push July to 788 before hitting contract highs. Fundamentalists will buy lightly now and get far more aggressive if Monday comes in with the same forecast that we saw today. We have heard talk of some producers switching acres from corn to beans as they are concerned about a large potential run on bean seed. It still might be a little early to expect southern areas of the Midwest to switch but the calendar is getting close. This market is getting back to the feel it had in January and February where all talk had turned bullish and there was little fear of a turnaround. Even if weather does clear out, those old downtrend lines will now act as support next week for the technical buyers to hold.

 

Direction

Almost all factors are pointing to higher trade now. You can look at lower yields, less acres, wetter forecast, technical momentum or anything you choose and it all points higher now. July speculators and southern weather will keep old crop leading the way while new crop follows along on talk that other areas switch to shorter corn or even beans. As a note, there has been little correlations between crude and dollar prices to corn moves lately…Ryan Ettner

 

 

Rich Nelson

Director of Research

Allendale Inc.

4506 Prime Parkway

McHenry, IL 60050

815-578-6161

 

Hypothetical performance results have many inherent limitations, some of which are described below.  No representation is being made that any account will achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.  One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.  In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading.  For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results.  There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

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