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Cattle Face a Turning Point
This week's trade will range from $121 - $123. Most sales will be at $123 and then $122. We will call this close enough to last week to be labeled as "steady money." However, this week may be more remembered as a minor turning point in what had been a heck of a rally. Don't forget that February futures rallied 8.27 from the low on November 14 up to the high on December 31. We are already 3.02 off that peak.
The reason for the change is weather. The last phase of this month and a half rally came from the forecast for snows then the actual finding of it. We have both clear skies in the current forecast as well as rising temperatures. Yesterday we noted Garden City, Kansas, would see up to 54 degrees on Tuesday. Friday's forecast update has moved that up to Sunday (temps rising even faster than expected).
One thing which may be confirming this change is wholesale beef. Through Friday morning, the week as a whole will still end higher. However, losses for choice and select were noted both Thursday and again Friday.
Much of that data that we rely on comes from USDA's Washington, DC, office which is closed. However, the daily and weekly kill estimates out of the St. Joseph, MO USDA office are still being reported. USDA's weekly packer survey found an estimate of 520,000 head for this week’s run. That was just over our 516,000 estimate from this morning. This number is 4.6% under last year. We don’t get too excited about the year/year comparison here due to the mismatch in holidays vs. last year. We will point out the past six weeks have averaged 0.5% over last year. General slaughter rates for 2019 should run about 1.0% to 2.5% over last year.
Friday's monthly employment report from the Department of Labor was a big win. 312,000 jobs were added to non-farm payrolls. That was the best since February! It was also far above the 177,000 trade expectation. This may help quell some fears noted by outside markets.
Allendale is short-term negative to the cattle market. Yesterday's order to sell the February at 123.60 was unfilled. That has been lowered to 122.60. As noted this week, January is often a bear market for futures on a normal seasonal basis. Moore Research reports a seasonal break for February and April futures from December 27 to January 25. The June contract also shows that same break to January 25. The seasonals show that is a major low for those contracts for a rally that goes into expiration for the Feb and Apr. The June typically rallies up to March 12. There is often a lot of confusion in the first four months of the year about cash cattle and futures. You should really treat cash and futures as two related, but separate, markets during this time. Cash has its own seasonal with a rally up until March 16. Allendale does follow the seasonal issues but does not advocate trading them directly without context. Each year is often quite different than the general 15 year average.
The general message for the next four months is that bulls will be in control. The year's peak is generally posted in this market during this period. For 18 years straight, quarterly beef production fell from Q4 to Q1. The 2018 decline was 277 million lbs to a total of 6.465 billion. The range over the past 10 years has been from -134 million to 555 million during this quarterly change.
After a little bear market in January, on both seasonals and the changed weather forecast, we will be bulls. We will release Allendale's full short and long term supply, demand, and pricing forecast at the upcoming January 27 - 31 bi-annual Allendale AgLeaders Conference.
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