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Analyst: Peak Cash Cattle Prices?

This week's cash cattle tally tells us we have $127/$128 for Kansas through Texas, $129 dressed, and $205 carcass in Nebraska and Iowa. These would be $1 to $2 lower than last week. We suspect this will be the first week down that officially ends the recent strong price rally. Cash cattle rallied from the October low of $98 up to $130 last week in two separate phases. The second of these two phases started in early February at $119. Allendale suggests this will be the peak of prices for the remainder of the year. At a minimum, we are bearish through the end of August.

Wholesale beef has been down for both choice and select for seven days straight. During this period, choice lost 8.88 and select was down 11.80.

The week’s kill will come to 593,000 head if USDA’s 1 p.m. Friday estimate holds. That would be 5,000 under our morning estimate. It would be 20,000 head under last week. We don’t consider that as being a sign of some sort of supply tightening. Last week’s kill was a special one at 14% over last year. In fact, you could say this week’s 593,000 is also a large one at 10% over last year.

Thursday’s export sales report for beef showed only 10,846 metric tonnes of new sales from the 17th to 23rd. That was the lowest sale in five weeks. There was no sign of “extra” U.S. sales at all in today’s export number from the Brazil meat scare.

McDonald’s plans to use fresh beef made to order for quarter-pound burgers at most locations next year. Though it won’t translate into a measurable jump in beef demand that we can quantify, it should improve demand.

Feed Cost

Today’s acreage and quarterly stock numbers won't change anyone’s price projections too much at all. We have been a little quiet in discussing this issue in recent weeks with our negative price bias to grains. That has been a good strategy so far. May corn rallied up 54¾¢ cents off the August 31 fall lows to the February 15 peak; 41% of that rally has been removed. On the soy meal side, the May contract has rallied $55.10 per short ton from the September 27 low to the January 18 peak. Since that time, 79% of the rally has been removed. There is only $11.60 left before we retest the fall lows. At this time we are advising hand-to-mouth procurement for both sides.

Separately, some active hedgers are considering long corn hedges at this time. Two weeks of huge fund selling – 131,910 contracts – has only pushed corn 4½¢. You could argue that would be a sign this market is resisting lower prices. While we could see some minor long hedges using limited risk options, we would not go hog wild at this time. We still suggest the year’s time for serious feed cost hedging can be held until early summer.

Rich Nelson | Allendale Inc. | 815-578-6161

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