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Keep an Eye on the Cattle Market

Cattle futures have traded into a narrow consolidation pattern on futures charts. Prices continue to meander up and down in a mostly methodical fashion as the balance between supply and demand continues to be perceived mostly as equal and balanced. In the big picture, when looking at continuous monthly futures charts, tremendous support continues at the 100.00 mark, with overhead resistance at 113.00. Prices look to continue to remain in between those two price parameters as we head into third quarter, with price potential into fourth quarter coming into question. 

The known fundamental that supplies were on the rise for second quarter 2018 has been fully priced in, and while normally an increase in supplies would send the market screaming lower, domestic and export demand has increased enough to consume the additional supplies. But now that may be changing, and here are things you need to be made aware.

EXPORTS

Recent cattle exports have been fantastic. According to the USDA, U.S. beef exports so far in 2018 are up 13 percent from last year! We have exports nearly 984 million pounds of beef to 108 different countries in 2018. Top destinations include Japan, South Korea, Mexico, Hong Kong and Canada.

DOMESTIC DEMAND

Domestic demand for beef continues to be strong as burgers and steaks continue to sizzle on summer grills. However, something is lurking in the background that may or may not affect consumers’ appetite for beef. The Pork complex is seeing a potential reduction in exports, due to trade fears with China, Mexico and Canada. This means more supplies of U.S. pork may soon swell in cold storage. If that is the case, there is a potential for cheap pork products to flood the grocery store later this summer. Will the consumer opt for cheaper pork or continue to satisfy the craving for beef? With the economy strong, one would be tempted to smugly say, the consumer will stick to beef. However, soon back to school shopping (school supplies, school fees, fall sports fees, fall sports shoes, and any back to school clothes because your kids grew over the summer) will be in the forefront. Any extra slush money in the family fund may need to go to back to school needs, versus succulent beef. In addition, crude oil prices, as of this writing, are back above $71 per barrel which translates into higher gas prices at the pump. This also eats into the consumer budget. 

SUPPLIES

Beef supplies continue to be large for the moment.The recent June 1 cattle on feed report showed a feedlot inventory of 11.553 million head of cattle in feedlots of more than 1,000 head capacity. This is the largest June 1 feedlot inventory in the data series that began in 1996. There is the reality of continuing larger supplies in the short term, and monitoring that into the fall and winter is important. Overall the repot was bearish, yet one little nugget stuck out which we will monitor. Placements of cattle over 700 pounds were down 4.6% from last year.

For now, the supply and demand fundamentals continue to balance each other well, which is why prices continue to chop and traded in this sideways pattern. Yet be aware of what might be lurking ahead. Will demand continue to remain strong with the threat of trade wars? Will domestic consumer demand continue to be strong as well? Will the wall of cattle continue? Fourth quarter 2018 will likely lead us to the answer. 

If you have questions, you can reach Naomi at nblohm@stewart-peterson.com.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report.  Futures trading involves risk of loss and should be carefully considered before investing.  Past performance may not be indicative of future results.Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2018 Stewart-Peterson Inc. All rights reserved.

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