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Cattle Market Drop Concerns Traders

Lower prices seen for the next several weeks.

At the time of this writing we only have $127 on the books for today's cash cattle trade. Yesterday's ran from $124 to $128.

Last week's average was $136, with the week's peak at $137.50. This sharply lower cash cattle trade is obviously a bit worse than anyone expected starting out the week. It is also quite a surprise considering the relatively minor hit to cash cattle this week. Boxed beef, through the Friday morning USDA report, is only down 1.34 for choice and 0.62 for select.

The sharply lower cattle trade was made from an usually large interest from cattle feeders. With futures implying lower prices for the next several weeks, cattle feeders are moving anything close to market ready. As noted in the AM comments, we have reports of feedlots not even getting calls back from their packer buyers yesterday and this morning. Expect another week of heavy offered supply next week as well.

USDA's Friday afternoon production report pegged the week's run at 628,000. That was next to our 632,000 head estimate from the morning and therefore not a market mover. It is the second biggest kill of the year and the largest in seven weeks. Compared with last year it was 3.7% higher. Yesterday's weekly summer of the kill week from two weeks prior showed the average carcass is now only 1.8% lower than last year. It was just a few weeks ago it was 3% lower.

On the charts the dominant contract, August, has not yet broken the May 16 price of 116.77. When/if it does, the double top formation would imply 106.00. Also on the charts, we have a small open gap up from 120.42 - 120.60. That may be a good short term target for bulls to push for next week if they can. We certainly can see a small move higher in the shorter term. Packers will be sitting with a large margin after this week's cash beef and cash trading. As a reminder, based on Allendale's supply and demand estimates we see the August fat contract at $114-$117.

We remain bearish and will hold the $120 to $123 hedges advised in the first seven days after the main market peak on May 4. RN

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Rich Nelson
Allendale Inc.
815-578-6161

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