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148539

Lower Cattle Supplies, Higher Prices Ahead, Analyst Says

Cattle on Feed Report Seen Mixed

Today’s futures trading was a bit odd.

There was an attempt at liquidating longs ahead of the bearish advertised Cattle on Feed report. The dominant December contract left a 20¢ gap on the open, on the drive to push 2.85 lower for the day. The comeback by the close, to only 7¢ lower, would be viewed as a clear rejection of lower trade.

It fits in with our discussion point. We suggest there is a temporary period that we are now in of lower supplies and higher prices.

This week’s cattle kill was pegged at 592,000 head. That was a little over the 586,000 we were discussing this morning. It will still be considered supportive, though, as it was the smallest kill in six weeks.

This also marks three weeks in a row of "moderately higher than last year" slaughters. This week’s kill was 3.1% over last year. Last week ran 4.5% over. The week before ran 5.8% over. During July and August they were running 9% over last year.

It is very clear that supplies have stepped down quicker than the trade was expected. We still suggest the next two to six weeks will be characterized as moderate kills. The peak kill week from three weeks ago was 613,000.

The 2 p.m. monthly Cattle on Feed report can be called bullish for the front-month supply and bearish for the 2017s.

USDA reported 15.1% more cattle placed into feedlots in August than last year. At 1.879 million head, this was the largest August placement in four years. Also bearish, this marked seven straight months of above last year placements.

This should remind the trade that we are still dealing with the negative part of long-term liquidation in the industry. In case you are not aware, cow/calf operators have been in liquidation since spring.

Beef cow slaughter is up 18% over last year since April. Placements have been packed with a lot of those heifers that were intended to become mothers. August placements determine a part of the January-through-April beef supply. The 15.1% jump in placements is bearish because it was large. But, also, because it was larger than the +12.6% trade estimate (ALDL +13.1).

Marketings, the number of finished cattle leaving the feedlot for visit to the packing plant, ran 17.6% over last year in August. This is bullish for the front-month supply. At 1.868 million head, this was the largest August marketing since three years ago.

This will be considered bullish as the trade now has to calculate a smaller front-end supply of finished cattle remaining in September. This comes on top of Allendale’s assertion that we have more moderate kills through October. The trade expectation was +16.7% (ALDL +16.5%).

Big placements and big marketings mostly cancelled each other out when considering the September 1 total feedlot population. COF on September 1 was counted at 1.5% over last year. That was just over the +1.1% trade expectation (ALDL +1.9%).

Also out at 2 p.m. was the monthly Cold Storage report. USDA counted 476.619 million pounds of beef in the nation’s warehouses at the end of August. That was bearish as it was over the 462.7 trade estimate (ALDL 467.897). This number represented a 7 million-pound increase over the end of July. The five-year average for this month is a 12 million decline.

At the time of this writing, we have not traded cash cattle in a convincing way yet. Minimal trades on Wednesday were seen at $110.00 - $110.50 via the Fed Cattle Exchange. Light trades were noted in Nebraska yesterday at $173 dressed ($170 Iowa/Nebraska the previous week).

There were some disappointing trades, today, in Iowa at $167. As it stands right now, we see no reason to change our call for moderate gains for cash cattle up to $114 in October. This two- to six-week period up ahead will likely be the best time to sell first-half 2017 fat and feeder cattle.

As noted last night, we are not going to get too excited about China’s move to remove part of their bans on U.S. and Canadian beef. China is already accessing its beef through the murky Hong Kong meat trade.
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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 Inc.’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. DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Allendale Inc. believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

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