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Cattle data is price supportive

Agriculture.com Staff 10/20/2008 @ 7:08am

Live Cattle: After hitting new contract lows yesterday, futures posted a good rebound Friday. The December rallied enough to fill the gap which ran from 9240 to 9320. The key thing to watch when markets fill gaps is what happens afterwards. Do they close above the gap (bullish) or fail? Today the December closed almost $1 off the high. We cannot say the bottom is in. For next week's trading we will start out higher due to the Cattle on Feed report but soon go back to watching only the financials for price direction.

Long Term Cattle Supplies: Cattle on Feed, released at 2pm was supportive. Placements of new calves and feeders into feedlots in September were 94.5% of last year (-5.5%). The average guess was 96.9%. These animals will finish out from February through June. In the breakdown USDA indicated <600 lb calves and 600-699 lb stocker placements were down 27% and 18% respectively. That is supportive for the June contract. >800 lbs heavy feeders were up 20%. While that may not mean lower February or April futures Monday they may not gain as much as June. For Marketings, finished cattle leaving feedlots, USDA counted 106.8% of last year (+6.8%). The average guess was 106.4%. That is slightly supportive to the front end supply (October futures). We now have lower placements in six of the past seven months. We can now project feedlot slaughter to remain under last year through February likely.

Short Term Cattle Supplies: On the near term supply situation we have nothing but good news. This week's kill was 7.3% smaller than last year. In the previous four weeks, the kill averaged .7% higher. Part of this week's shortfall was due to Wednesday's kill being 10,000 head under the average guess. Even if we throw that back in the kill would have been 5.7% smaller than last year. The second reason for the shortfall may be cows. Slaughter of steers and heifers from feedlots accounts for 80% of the total kill. We have been dead right on our forecasts of lower marketings from feedlots. In the past four weeks feedlot kill has averaged 2% lower than last year.

While we do not have steer and heifer kill numbers for this week yet it is likely around 5% to 6% lower. The problem, which few have been talking about, is cow slaughter. Cow slaughter, dairy and beef combined, accounts for around 20% of the total kill. During August, it ran over 20% higher than last year. In September, it started at 20% higher and ended 8% higher. We would imagine it is currently close to even with last year. Getting this huge cow kill under control will help overall beef supplies right at the time that feedlot offerings to packers really dry up into November.

Live Cattle Technical Commentary: The trend is down.

Vital Technical Indicator: Next projected major turn day is November 4.

Trade Idea(s): Stand aside.

Option Strategy(s): Stand aside.

Live Cattle: After hitting new contract lows yesterday, futures posted a good rebound Friday. The December rallied enough to fill the gap which ran from 9240 to 9320. The key thing to watch when markets fill gaps is what happens afterwards. Do they close above the gap (bullish) or fail? Today the December closed almost $1 off the high. We cannot say the bottom is in. For next week's trading we will start out higher due to the Cattle on Feed report but soon go back to watching only the financials for price direction.

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