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“The Worst of the 2016 Cattle Market Is Behind Us,” Says Analyst

What a week! We can finally state that the worst of 2016 is now behind us. Our running premise over the past four to eight weeks was that the spring and early summer placements would put a lot of cattle directly into the late-summer finishing period. We suggested that mid-September would be the peak of kills with something around the 621,000-head mark being posted. That would exceed the summer peak of 608,000 and tank prices. The other portion of this premise was that October and December futures were oddly undervalued in their call for cash cattle prices to actually fall after that mid-September peak we suggested. Our general message was to be bearish until mid-September, then buy.

The bearish plan worked great up until last week. Slaughters were rising. Two weeks ago the kill was 613,000 head (taking out the summer high). Slaughter has cut back about two to three weeks ahead of our estimate though. Last week’s holiday kill ran 5.5% over normal. As that was a holiday you can write that one off. This week’s kill only came to 604,000 head! That is moderately off the 610,000 we were estimating this morning. It is a bit off the 621,000 we were discussing for this week one month ago. In the previous four weeks, before this week and last, kills were running 9% over last year!

Cash cattle started this morning at $107 in Nebraska then quickly moved up to $110. To everyone’s surprise, Texas – then Kansas – also traded at $110. This was a $5 jump over last week’s average. This was the biggest one-week jump in 11 weeks. Our minimum upside target was $110 with a likely upside to $114. For those asking if Allendale is now a raging bull calling for $200 cash cattle, we say firmly no. We have a short-term period over the next four to eight weeks when supplies move down from burdensome to slightly less burdensome. In the coming week we will play with the numbers in the new supply outlook as well as some of the more bullish scenarios that our feedlot clients would rather us explore (lower numbers + lower weights). Stay bullish.

 

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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