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126782

Bulls Eat Soybeans, Bears Control Cattle

Yield estimates considered by trade

The soybean market ended the week on a positive note, managing to settle higher for the second day in a row.

The November contract has now bounced 15½ cents off the low for the move that was scored yesterday. The market was oversold technically and due for a bounce. With a three-day weekend ahead of us, it was as good a time as any to bounce. The lack of producer selling and end-user pricing did provide support to the market. Fresh news to trade was lacking.

Informa updated their yield estimate today putting the national yield at 49.5 up from their previous estimate of 47.7. They also increased harvested acres 400,000. FC Stone was expected to release its estimate after the close.  

Today’s monthly job number off 151,000 was a little disappointing compared with the trade's thoughts. This was viewed bearish the U.S. dollar and friendly to commodities as the disappointing number lessened the chance of a rate hike this month.

This seemed to have macro traders putting money to work in the commodity sector today. With the chart still looking negative and fundamentals still looking bearish, we think rallies will be hard to maintain and should be sold.
 

Cattle Commentary

Another day of losses brought live cattle prices yet again to new contract lows. For the week, the October lost 4.75. Cash cattle traded at $110, $5 under last week’s average price.

Bears have full authority in this market, and the trade is now looking at the possibility of sub-$100 prices for a few weeks ahead. As it stands right now, futures are pricing in $100/$101 in mid-September, $103 in later October, and $102 at the end of the year. Those estimates are using the normal basis for each week in the months ahead.

Today’s push to new lows yet again was helped by a 3.64 drop for choice and 0.57 decline in select graded wholesale beef. Through the midday meat report, the week’s losses in beef are 7.38 and 5.65 respectively.

Rising supplies are the concern here. We have gone from 579,000 head four weeks ago and are now up to 605,000 and 604,000 for last week and this week respectively. We project the mid-September supply at 621,000. The trade’s mindset right now is that if cash dropped $5 this week then we will certainly be cutting $3 to $5 off cash in each of the next two to three weeks. To be honest we have to ask, "Why isn’t this a possibility?" Recent price action has been a bit ridiculous. There’s nothing that says it won’t continue.

Packers are certainly looking at some very attractive margins as a whole. One firm estimates an $81-per-head gross profit on purchased cattle right now. That is far over the $34 from last year. Big supplies can widen the wholesale beef to cattle spread as well as improve the fixed costs applied per head for plant operations.

Don’t forget that this week’s kill was 8.0% over last year for the number of head and 7.4% over last year in terms of beef production. On the price end, we had projected a low in September of $110. We cannot economically justify current prices. Having said that, you can certainly justify them just based on psychology.

We are urging clients to hold from purchases for another two to three weeks.

The new online cash cattle trading platform will restart on September 14 (fedcattleexchange.com). We strongly look forward to it.
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Rich Nelson Allendale Inc. 815-578-6161
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 Inc.’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.
 

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