You are here

Analyst: No Seasonal Dip in Cattle Numbers in 2017

Better-than-expected news was seen from the Friday cash cattle action. Active trade was seen in the Plains at $120. That was even with last week’s trade. It was, however, over the Wednesday Fed Cattle Exchange trade at $1 lower. The later-week support from cash beef was a help. Through Friday’s midday meat report, cash beef was +2.74 for choice and +3.66 for select.

USDA’s weekly production report suggested the week’s kill would run 572,000 head. That is near the 568,000 we discussed in the AM comments. This number would be 9.0% over last year. The past four weeks have run only 4.3% lower. The jump, compared with last year, is not an actual production increase when looking at the past four weeks. Those past four weeks ran 571,000 to 596,000 head. The drop vs. last year is due to the fact that we are not getting the same seasonal dip in offered cattle numbers that normally hits from February through early April. Don’t forget that up until recent years, the highest cattle price for the year would be posted in in the coming weeks. For 2017, we are not going to get that same drop in production. It will fall, but nothing like normal.

If this year’s supply flow were something closer to normal, then we would suggest there is more upside in the coming four weeks before the big price drop into summer lows happens. You could also argue that the April to June contracts are implying too much of a price discount. In this year’s case, we are marketing this like last year’s price pattern (early-year peak).

For the big picture, bears are still in control. The cash cattle peak of $122 was noted four weeks ago. The coming February 24 Cattle on Feed report should confirm big January placements, just like December. There’s still a bit of optimism in the feedlot sector carried over from the October to January rally. It is a little concerning that this enthusiasm is seen when those feeders would break even at $105 for summer action.

The bearish Head and Shoulders top formation on the charts is still in place. It has not been activated as there has not been a close below the support points (neckline). For Tuesday’s trade the support points are 112.39 for the April and 103.50 for the June. On the other hand, today’s higher pricing still has not invalided the formation. We expect this formation to become valid in the coming weeks.

Hedges are still strongly encouraged, and $94-$96 late-summer lows are the current target. 

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’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.

Read more about