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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.
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