Content ID

270744

Cattle Report Seen As Price-Friendly

Fewer cattle have been placed in feedlots vs. a year ago.

The 2018 beef production forecast is expected at 27.265 billion pounds. That is 4.2% over last year.

By quarter, we see Q2 at +8.6%, Q3 +3.0%, Q4 -0.4% and Q1 of next year at a 3.1% year/year growth.

Exports are expected to remove 3.080 billion pounds of beef from the U.S. market. That is 8% over last year. With a normal 0.7% rise in the U.S. population over last year, we forecast the amount left for each U.S. consumer at 58.6 pounds per head. That is 3.0% more beef per capita than last year.

This is the largest amount of beef pushed to the U.S. consumer in eight years. On the price end, we expect futures to slowly recover some of its lost value as it approaches the supply bulge in the weeks ahead. The market overestimated the supply ahead. A bigger question is with the late summer and beyond period. We expect a minimum of three months of lower than last year’s placements to support prices later this year.

The monthly Cattle on Feed report could be called slightly positive. The nation’s cattle feeders put 9.3% fewer cattle into feedlots during the month of March than last year. That was next to the average trade guess of -10.2% (ALDL -12.2%).

Sharply lower numbers were expected by the trade, as cattle feeders are expecting some profitability problems for outgoing cattle in the next couple of months. Breakevens are seen in the $126 to $129 range directly ahead.

Additionally, we are now being compared against large placements from last year that ranged from 11% to 16% over 2016. You can expect another two or three months past March of placements lower than last year. March placements determine a part of the July - October supply.

March marketings, those finished cattle leaving feedlots in March, ran 3.9% under last year. That was right on the -4.0% trade estimate (ALDL -5.0). The actual steer and heifer kill in March was almost even with last year. USDA’s survey number was lower than that due to the mismatched calendar with 2017.

With a drop in new cattle going in, and a mild drop in cattle going out, the nation’s On Feed number fell from March 1’s +8.8% to now +7.4%. That was right on the trade guess. Today’s report was expected for the most part. We still have the same setup that is known in the industry.

On the bear end of things, we compute the number of cattle that are currently +4 months finished at 4.391 million head. That is a full 23% over last year in the same month. That does not exactly mean that May or June cattle kill will be 23% over last year. It does confirm that we have a lot of cattle to deal with.

Allendale estimates the cattle kill these next few weeks will run 7% to 9% over last year. It is not as bad as USDA’s current guess but it won’t be pretty in the weeks ahead.

As noted with the price outlook discussion at the beginning, we expect cash cattle to expect a general decline into early summer but for futures to see slightly higher trade. Futures are still trying to recover from over-estimating the up-front supply. We see June at $106 eventually and August at $109. 

 

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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’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.

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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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