Content ID

276070

Farmers Look to Walk Corn Off of the Farm, Analyst Says

On the cattle charts, this week was a winner.

This week’s cattle slaughter, of all classes, may run 652,000 head according to USDA’s weekly packer survey.

That would be just over our 646,000 morning estimate. We can’t call it bearish, though. This is 0.9% over last year and under the previous six weeks that averaged 1.2% over. Also, it fits into Allendale’s viewpoint that fall supplies would be trending down from the early summer peak for the year. This confirms our call that we won’t repeat the 2016 and 2017 supply flow where the peak was in the fall.

During the trade session today, October settled limit up. December was up 2.57.

We have to wonder if this is partially related to the Chinese foot-and-mouth disease story. China’s Ministry of Agriculture reported foot-and-mouth disease in a herd of cattle that was transported from the Gansu province to the Xinjiang region; 47 cattle were culled.

There is a contingent of hog traders hyped up for the revolving ASF story. It is likely that some would suggest this is the tip of the iceberg. We are not ready to suggest that, but the suggestion is there.

On the beef end, we have clear restrictions on the amount we could send to them. With the non-hormone and traceability requirement only about 5% of U.S. cattle would qualify in the first place. On top of that, you would have to bid those numbers up from the U.S. marketplace where those numbers are destined. During July, we shipped them 1.386 million pounds of beef. That was only 0.5% of the 279.244 total that month. We’ll take the gains but only because it fits into our already supportive viewpoint.

Cash cattle has not yet been decided for the week. It will be within an hour or so of this writing. We have confirmed trades at $109 in northwest Iowa. That sets the market for steady $108 at a minimum and potentially $109 for the other areas. On a dressed basis, we also have word of bids now up to $175 in eastern Nebraska. Last week’s average dressed price for Nebraska steers was at $170. Allendale’s expectation of higher pricing this week should be in hand.

Though we can throw a little shade here or there about why we are rallying, we can’t ignore the fact that charts don’t care. On the charts, this week was a winner. Today’s October trade is the best since March 15! It would also be a breakout that closed near the high of the day.

Today’s trade about fills our call for slightly higher prices. Our targets were $114 and $115 on the October and December. You’ll notice that the 2019 contract really jumped this week as well. They are above our view of economic value... $120 for February, $118 for April, and $113 for June.

On the feeder end, we don’t like this rally. We don’t like it at all. Those Iowa guys are buying simply to walk corn off the farm and not because there is valid reason to feed cattle. For now, their plan has worked due to the short-term bounce in fats this week. Breakevens on these feeders are from $120 to $125, for first half of 2019 finished fats.

Speaking of cattle finishing, expect August placements to run higher than last year on next Friday’s report. The unofficial numbers from a few analysts are about 4% over. When we release our estimates on Monday, it will be higher than that.

Of note, last year’s September through November placements were huge at 10.2% to 13.9% over last year. Friday’s report covers August. In the next three COF reports after that, placements will look small because we are compared with very large numbers. On the other hand, we may equal those big 2017 fall placements because Iowa/Nebraska producers are in the same situation. Great corn yields and low corn prices.

Bottom line, we are happy for this week’s rally. Let’s not get carried away thinking this will last forever.

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Rich Nelson
Allendale Inc.
815-578-6161
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