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Cold Cattle Weather to Be Followed by Above-Normal Temps

Price gains could be reversed quickly.

February futures gained $3.30 this week.

At the time of this writing, we are still waiting for cash cattle trading to develop. Bids have been moved up to $122 live and $193 dressed in eastern Nebraska. Last week’s average trade was $120 live and $193 dressed. We would guess $122 will be traded Friday afternoon. That would be considered a slight disappointment.

Extreme temperatures are in store for the entire Plains through the weekend. This will reverse some of those gains posted in previous weeks due to above-normal temperatures. While many in the trade may wonder if this means weight gains are set back for several weeks, many others would argue that prices could still fall next week.

Our friends in Hereford, Texas, are slated for highs of 27°F. and lows of 9°F. on Sunday. Lincoln, Nebraska, is set for -2°F. for a high on Sunday and -20°F. for a low. There are very valid concerns about this type of cold.

On the other hand, by next Sunday the 7, Hereford will see highs back to 58. Lincoln will be up to 30. That does not sound like much consolation, but the market will take it as better news. If this were combined with heavy precipitation, then we would have some big problems.

USDA’s weekly slaughter estimate came to 502,000 head, near our 500,000 guess noted in the morning. That is 2.6% under last year. The previous six weeks were 4.5% higher than last year. Given the holiday week, we won’t suggest this is the sign of any change.

For the year, February 2018 live cattle futures will end 2017 at prices 4% over the end of 2016 price for the 2017 February contract. For feeder cattle futures, it is even larger at 14%. Given that this is still an expansion year, that will get some attention. As a reminder, what goes on at the live animal level is not quite exactly the same as retail. Some of this extra product was diverted to exports, 11% over last year. Also, end users are taking a lower share of the U.S. dollar this time around. The last factor is the fact that the U.S. consumer, due to better finances, is willing to accept more product.

For short-term issues, we would feel comfortable starting long positions for a drive higher in price into the spring, only on a good pull back in price. That may be seen next week with the warmer weather ahead. On the fat side, we are slightly positive with a $124 April futures target. Have a safe and Happy New Year. RN

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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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