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Analyst: Cattle Futures to See Minor Rebound This Month

The week’s kill came in a little larger than expected at 605,000 head. This was under the 611,000 from last week and below the peak kill of 613,000 from five weeks ago. Allendale does not expect any wholesale drop in supply to cause a sharp rally. Instead, our contention is that a slightly smaller run will be seen in the October and November time frame. Our weekly estimates ahead are sitting around 600,000 head.

At this time, we don’t see any major impact on beef pricing from the hurricane. Let’s see if that is still the case once Monday rolls around. A more northward track into Washington, D.C., and the northeast seaboard would change that.

In the short-term, we had trades at $102 this week. Futures are suggesting a minor rebound to $103 by the end of the month, but then a decline to $101 by the end of the year. Our call is for a minor rebound to $106 for December futures before the next big supply push in the first half of 2017.

There have been several short-term rebounds in this general long-term decline in pricing since 2014. The last two minor rebounds started on July 21 and September 6. Based off the dominant contract at the time, October then December, futures rose by 10.5% and 7.5% respectively. Based off Monday’s 98.90 current low, a similar move would imply 109.33 and 106.35.

The farmer share of the retail dollar has fallen to some tough levels. At the peak of the beef supply tightness a couple of years ago, the live-animal level was taking 58.2% of the retail dollar. That has fallen down to 41.9% in July and 42.8% in August. Low prices in 2015 and 2016 are just from the moderate increase in beef production, they are also due to a wholesale decline in retail dollar ownership. We are near the all-time low in retail share (41.0% in 2009).

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