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Cattle Market's Bulls Have Issues

Though it feels like live cattle futures were up $15 for the week, the actual increase was $2.00 for the June. The August was up $1.97. Cash cattle futures this week pushed to new highs for the year at an average price of around $131, up $3 to $4 from last week. Boxed beef was up 5.61 for choice and 4.58 for select through Friday's morning meat report. Bulls are still officially in control.

Friday's Cattle on Feed report will be viewed as bearish. If we were not in the midst of a massive rally, we would call Monday's open from $1.00 to $1.50 lower. Instead, we have a more moderate 50¢ lower opening call. USDA's monthly feedlot survey found March placements at 2.102 million head.

Placements are the number of new calves and feeders entering feedlots to start feeding in March. That was 11.1% over last year. This surpassed the 6.5% average trade guess and even Allendale's +8.8% estimate. This was the biggest March placement number since the current data series started in 1996. That should get the market's attention. March placements hit the slaughter market from mid-August through December, depending on the type of cattle entering. Here's the issue we need to consider with placements: Beyond the record March inflow, over the past five months we have placed 10.5% more cattle than the previous year.

We fully agree that the cattle bulls in this market have issues to discuss. The spring cattle supply was not going to be crushingly large in the first place. Given the strong domestic and export demand right now the situation is not that bad. However, we fully disagree with the market's expectations regarding the actual extra export tonnage from the Brazil meat scandal and certainly from the China beef trade deal hopes. We cannot input any reasonable export number that would justify this market's pricing.

Marketings, the number of finished cattle leaving feedlots in March, came to 9.6% over last year. That was right next to the 9.4% higher trade estimate and Allendale's 10.0% guess. We had a lot of cattle slaughtered last month and this reflects that. The April 1 On Feed ran 10.904 million head. That was 0.5% over last year, which is over the -0.3% trade guess (ALDL called for unchanged). This is the largest April 1 On Feed in four years.

Monday's 2:30 pm Commitment of Traders report showed Managed Money (funds) bought 8,161 contracts of cattle. That is a number for all contracts. This marks six weeks in a row of fund buying. The current position of 131,533 contracts net long is still shy of the all-time record long of 145,394 contracts.

For those asking, no we cannot call a top in this market yet. It is likely due anytime now. Bulls will say the seasonal jump in offered cattle over the next three weeks won't happen or will be muted at best. Our action message remains: If you want to sell, set a sell stop and only sell on a falling market. If you want to buy, we certainly would suggest having a set risk point. Our price projections made from what we consider realistic export expectations with China would suggest June futures at $110, August at $107, and October at $111.

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

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