Supply’s Seasonal Low Pushes Up Cattle Prices
At the time of this writing, we have confirmed cash cattle trades at $130 in Kansas and Texas, $129 in Iowa, and $128 in Nebraska on a live basis.
The Southern trades are the newest. We assume the North will quickly move to that price. Carcass-based trades come to $206 in Iowa. Last week’s average trade was $126 and $200. This is a win for cattle feeders.
USDA’s weekly cattle slaughter estimate totaled 596,000 head. That was next to our 598,000 morning estimate and won’t be a market mover. This was 3.4% over last year, which is in line with the previous four weeks that were 3.6% larger than last year. We are at the year's seasonal lows in supply, which is a contributing factor to the price gain from $120 cash cattle in the first week of the year to today.
Today’s futures market closes, with appropriate basis for each time frame, imply cash at $129/$130 the remainder of the month. April futures imply $128. June implies $119. August gets prices down to $116.
Cattle Feeding Profitability: While futures and cash are in uptrends, we remain a little concerned over feedlot profitability: $122 and $123 is the breakeven price for February and March finished cattle, based on those $150 to $155 late-summer feeder prices. Today’s jump in cash eases some of the concern for April and May finishers, which hold $127 and $130 breakevens. That came from the fall feeder rally from $155 to $167 (Oklahoma City prices). Though supply is not the only determinant of price, we do have a little hesitation in saying cash cattle can hold a relatively high price in the face of that supply difference between now and spring. Look at the chart on this page. Also, don’t forget this year’s spring supply will hold about 8% more kills than last year. That seasonal rise in supply will be exaggerated by this problem.
Since feeder prices have fallen back down to the $150 to $155 range, fed cattle are looking at a $120 to $124 breakeven from June through September. This rally we are in right now should be more of a hedging opportunity than a rally to get bullish on. It has not topped yet, and we still look for another week for bulls to run the show. But let’s not get out of line here.
Allendale is still a mild bull in the short term. We will start hedges for spring and summer fat cattle when April hits $128 (next week). Allendale’s expiration prices are $124 on the April, $120 on the June, and $112 on the August. RN
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