Potential Low Seen For Cattle Market, Analyst Says
Market 'bulls' had their first winning week in a long time.
October futures were +2.47 and December was +3.65. Wholesale beef was +0.87 for choice and -0.47 for select through today's morning meat report.
Early week cash cattle sales were disappointing with $103 and $163 posted in the North on Wednesday. That would be a new low for the current downtrend.
At the time of this writing, we are still waiting on Friday sales. We assume that will hold good news as packers moved bids up to $105 on a live basis and $166 dressed. Last week's trade was at $104 and $105.
There is talk starting about a potential low for the year in cattle. On the last topic, Allendale is 50/50. Though our placement models imply the biggest supply week is still in front of us, at significant highs and lows in markets the exact price peak is more more on psychology than the exact peak supply.
In recent days, the market has learned that end users are interested in buying this lower priced beef. This week we noted that procurement for the 22 - 60 day delivery period is 57% over last year. That certainly is good news. Traders won't forget that buying for extended delivery was one of the supportive issues seen this past spring. On the other hand, that is not the whole story for fall prices.
What about supply?
The week's cattle kill came in at 555,000 head according to USDA's weekly packer survey. That was right next to our 554,000 estimate noted this morning. This week's kill would be 4.8% over last year. The past four weeks have run 5.6% over last year.
Thursday's cattle weight data showed that steers are 1.0% under last year and heifers are 0.5% under. That is obviously a clear improvement over the 3.5% and 4.0% lower than last year numbers we were dealing with back in May.
Yesterday's July export data release was slightly disappointing. Beef exports in July were 11% over last year. Beef imports were also strong though at 12% over last year. We increased our net importer status from 56 million lbs in June to now 62 million in July. The release of weekly export data today was bearish at 5,921 tonnes. This was the second lowest of the year and 48% under last year in the same week.
It is interesting to note that this market is doing a very similar thing to last year, just before the last bearish leg of the decline. Last year, the December contract posted a rally from Sep 6 to Sep 21 that totaled 7.5% ($7.60). This year's rally on the December has totaled 6.3% ($6.70). We certainly could be putting in a market low but we are not fully on-board. We do like the idea of enacting long term buys on the fall low but whether that point has been made is the question.
Those following our advice sold August cattle in the $120 - $123 range using options and rolled that into October. Feed costs should be locked in via December corn options on the July 3 open when December corn was at $3.95. That was made with a limited risk December option strategy that would only be out 10 cents.