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Short-Term Rally for Cattle Market

Supply still remains high.

Limit up trade on Thursday and another almost-$2 rally for the December cattle futures market on Friday? What is this? People actually think cattle prices can go up?

There are some bullish issues to note here. This week’s cattle kill will only total 602,000 head. That is next to last week’s 601,000 but under the 610,000 from two weeks ago and the year’s peak at 615,000 from three weeks ago.

It certainly is true that supplies have moderated, and should remain so, in October and November. Don’t get too excited though, this is still 9% higher than last year kill and 7% higher than last year beef production (still lower weights than 2015).

Along with more moderate levels of short-term output, the Cattle on Feed report at 2 p.m. was viewed as supportive. USDA suggested September placements ran 1.9% under last year. That was a bit under the +3.6% average analysts’ guess.

We have to highlight that Allendale was on-target with a 2.6%-lower-than-last-year estimate. This stopped that string of seven months in a row of higher-than-last-year placements. Also, it was the smallest September placement of the 20-year history in the current data series (last year was the previous low).

Cattle feeders finally backed off with placements as bearish psychology was rampant last month. Cash cattle prices fell from $110 in the last week of August to $102 in the last week of September. Don’t forget that $5 of that $8 decline last month was in the first week! There was clear reason to see some resistance this time around.

Before you get excited and suggest that the big placement push is all over, we estimate there are a few extras still waiting for the next couple of months. September placements help determine part of the February to June.

Marketings, the number of finished cattle leaving feedlots last month, were 5.5% over last year. That was under the +6.2% trade estimate (ALDL +6.5%). We don’t call that too much of an issue. The total feedlot population as of October 1 therefore was pegged at 0.4% over last year. That was under the +1.3% trade guess (ALDL +0.4%).

Though Cattle on Feed was viewed as supportive, we must curtail those hopes with the monthly Cold Storage (CS) report number. At 520.717 million pounds, it was a bit over the 494.4 million trade guess.

There are only two analysts estimating for CS anymore, Allendale at 498.9, and one other. This report was just not bearish because it was higher than our guesses, but also because the 44 million-pound jump over last month was the second-highest September inflow in history (going back to 1970)!

We all know that last month was a train wreck for pricing. This report shows that end users were not able to push this tonnage onto the consumers’ plate. That is not a good sign.

Wrapping all of this news up, this week was a win for bulls. December fats gained 4.42 as the trade began to question how long the end user-driven pressure would last. Short-term (weekly) kills are lightening up (for now).

We are also hearing some reports of additional beef featuring finally. Let’s not get carried away and call this THE low of this move down from the 2014 peak to the 2017 expected trough. This is likely a short-term rebound. Also, we did leave a gap on the charts at lower prices today (100.12 - 100.37).

Rich Nelson
Allendale Inc.
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