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Winter cattle market faces pressure
It's possible, say analysts, that 2011's banner year for cattle prices could end with a weak December.
But in this strong overall cattle market, "weak" is a relative term. Analyst Troy Vetterkind, Vetterkind Cattle Brokerage analyst, doesn't expect December-January fed-cattle prices to move much below $113-$115. In fact, his "worst-case scenario" doesn't fall much below $110.
That would be a shallow dip within an otherwise strong year. The Livestock Marketing Information Center in Denver is predicting a $113-$115 average price for 2011 slaughter steers, up from $95.38 for all of 2010 and $83.25 for 2009.
For 2011's fourth quarter that ends in December, the LMIC is predicting a $117-$119 average, up from $100.28 a year ago and $83.29 two years ago. (And LMIC director Jim Robb suggested just two weeks after this early-October projection that it may have to be tweaked upward by quarter's end.)
What with holiday beef-buying finished for the year and month-end bringing Christmas/New Year's slowdowns in slaughter, December can be a seasonally weak period for cattle anyway. But this year, extra pressure is expected from heavy summer placements, says Vetterkind.
While August placements of cattle into feedlots were down 1 percent from a year ago, it barely makes up for the record placements in July -- up 22 percent over a year ago and up 27 percent over June. Vetterkind sees the last of the summer placements coming to slaughter in December and January, putting a little pressure on fed-cattle prices.
Those placements were driven by attractive prices, plus the persistent southern Plains drought. Also, U.S. beef exports have been strong, and there was news recently that Japan may start accepting U.S. beef from cattle over 21 months. Japan's import changes rarely move quickly, and it could be well into 2012 before Tokyo begins buying the older beef. But Vetterkind is optimistic that Japan will follow through, and he looks for U.S. fed-cattle prices to start improving by early March.
Spring futures charts support that idea, with April prices moving decisively through $125 resistance during the mid-autumn period. Des Moines livestock analyst Kevin Penner hopes that $125 will act as April support, keeping prices in the high $120s. And if snow and freezing temperatures hit the southern cattle herd this winter, he thinks April futures could break above $130.
The volatile January-March period is anyone's guess, depending on weather. "The cattle charts during January-February will largely track the winter weather conditions for the major cattle areas," says Penner, with AgTraderTalk.
The best guess so far for the January-March period is an early-October projection from the LMIC: $117-$120 for slaughter steers, up from $110.12 a year earlier. (April-June: $119-$123, up from $112.79 a year earlier.)
Another factor to watch during January is USDA’s total cattle inventory, released at the end of the month. It’s expected to show a shrinking beef-breeding herd and the smallest U.S. cattle numbers since the 1950s.
Finally, no analyst discussion of the cattle market several months in advance is without a standard disclaimer about the economy. If the stock market is down and employment is up, U.S. consumers are likely to cut back on beef. Vetterkind is certainly watching the economy, but he says he's more concerned about the impact of foreign currencies. With about 15 percent of U.S. beef going to exports, a slight shift in currency exchange rates could make American beef expensive to foreign consumers. Major buyers include Canada, Mexico, South Korea and Japan, so he's keeping a close eye on their currencies.
Written by Andre Stephenson, a freelance writer.