Bean Market Catches Bid
The bean market caught a bid to close the week out on a strong note. News that China was canceling the auction of 3 mmt of beans out of their reserves gave the market a boost overnight and that carried through to the day sessions. Reports that China was going to auction off the beans helped press the beans lower earlier in the week. It is not a surprise that China would choose to cancel the auction as there is an over-abundance of beans in their ports at this moment. News continues to flow that Chinese traders are still trying to cancel bean buys on the book and in some cases on their way to the port. The trade continues to debate if the US will run out of beans. With the importation of both beans and meal projected to be at record highs due to plentiful world supplies, the ending stock pile will be tight but we will not run out. As for this week’s trading it definitely was a volatile on,e putting in a 51 3/4 cent range. The weeks lows were put in early and we closed only a cent lower from last Fridays close and this was 33 3/4 cents of the week’s low. The overall trend of the bean market continues to be higher and a close below $14.44 would need to happen to take out the long term trend. Near term support should be found at this week’s low at the $14.60 1/2 level.
- Stand Aside
The monthly Cattle on Feed report showed March Placements last month were 4.7% under the previous year. This was a bit lower than the average guess of a 0.8% increase. As these are cattle which will finish out from August through October this is supportive for those two contracts by 50 cents on Monday. There are two explanations for this decline in placements. Keep in mind there was a strong incentive for very big placements due to the biggest profit closeouts on outgoing cattle since 2003. The first explanation is that we are now reaching the point where supplies of calves and feeders are just too tight. In the previous five months, the placement total was 6.6% higher than last year. Considering that last year’s calf crop was only 1% lower than last year this would mean we would be moving into some deficit numbers for future placements. The trade was just not thinking it would have happened in March. The other explanation here is that weather was a bigger than expected problem in early March. Though we are all set in the spring weather mentality right now, don’t forget that the first week and half of March was terrible. Some sale barns and county roads were closed at that time. Based on the minor rally in futures ahead of the close, and the gains made in early April feeder prices, we would assume the market will believe supplies are getting harder to find.
The number of finished cattle leaving feedlots in March, called Marketings, was 3.7% under last year. The number itself was the smallest March marketing since the current data serious began in 1996. In actually, this number was right next to the average guess of a 3.6% decline and is therefore neutral to the April and June. We will call this as being slightly bullish those two contracts by 10 to 20 cents simply as the June will be the place where the average trader buys. The total number of cattle in feedlots on March 1 were 0.5% under last year. Now, on April 1, they were 0.6% fewer.
The price impact of this report is the question. Keep in mind the trade wants to be bullish here. An unnamed US official suggested a breakthrough in the US/Japan trade talks had been made overnight. No real details were given. Additionally, we are just finishing up a wholesale beef rally. Between April 11 and 24, choice beef rose by 11.68 while select gained 10.02. It was steady to lower on the midday report today. Cash cattle traded in Texas early this afternoon at $145. That was $1 lower than last week and would be considered a disappointment. We wonder if the post-COF sales will show a steady trade now.
As it stands we cannot ignore the fact that October through February placements ran 6.6% higher than last year. We still have the seasonal buildup in summer cattle slaughter to deal with. On top of that the placements which supply that timeframe were 6.6% higher. Low prices going into June, July, and partially August are already set in stone. It won’t be until mid-May that these begin to feel burdensome. Today’s report cannot stop this issue. What today’s report does do is take some pressure off the late summer/early fall supply period. You will also have traders questioning available feeder supply now. That will certainly help December and February fat cattle prices. We will work on our new supply estimates to see if we need to move our late summer price bottom expectation into an early summer one.
- (03/21) Bought December/sold August 5.30, risk to 3.00, objective 9.20. Closed 6.17.
- (03/31) Bought December/sold August 5.77, risk to 3.00, objective 9.20. Closed 6.17.
- (04/17) Sold August 132.72, risk 136.45, objective 128.02. Closed 135.60.
This material has been prepared by a sales or trading employee or agent of Allendale Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Allendale Inc.’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Allendale Inc. believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.