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Where's Wheat Going?
Wheat continued its upside trend again today, supported by the weak dollar and short covering.
We mentioned this week that the lows may in, leaving room for short covering and a reverse in trend since July 5th. The last two trading days have closed above the downtrend line that has been in place since September. Today’s Chicago wheat trade challenged the 100 day moving average but didn’t have enough support to push through resistance at 442 ¾. KC closed above the 100 day moving average today opening up further opportunities to the upside after resistance at 441 ½ was breached. Momentum has clearly shifted in the short term in the latter half of this week.
The U.S. Drought monitor comparison that the USDA and NOAA put out shows the risk of a drought through April 30, 2018. Winterkill is not really an issue if we have enough precipitation in March and April. This is clearly where our risk is at and the drought monitor confirms these concerns.
LA Nina patterns are weakening a bit, but it is more robust than last year. We remember the drought issues in the Plains and SW, and it is concerning that we could see similar if not worse conditions for 2018. Spring is not expected to bring abundant relief to the drought areas. In the U.S., LA Nina conditions pose the greatest risk to U.S. Wheat.
The growth in wheat yields will likely continue, even with normal yields. World stocks/use numbers are increasing but according to Rich Nelson, may not be entirely bearish. Allendale has plugged in higher production numbers for 2018, but our underlying assumption is that those numbers may be a bit high.
We are suggesting that the lows are in for wheat and a grind higher is likely with a target price of 500 for Chicago wheat. End users will want to consider their needs over the next 3-4 months while the producer will look to engage in selling opportunities near July 500 levels…RJ Meyer
The monthly Cattle on Feed report found a few more cattle were placed into feedlots in December than expected. USDA's feedlot survey suggested 0.8% larger placements than last year. That was higher than the average trade guess of -3.1% (ALDL -3.9%). Bears can also point out it was the largest December placement in seven years. There had been rumblings of higher than analyst guess numbers coming in the later part of this week so we won't call this significantly bearish for Monday's open. The trade will note Sep - Nov placements ran 10.2% - 13.9% over last year. We now have a December total 0.8% over. December placed cattle fit the May through August slaughter period.
Marketings of finished cattle in December were counted at 1.4% under last year. That was next to the trade's 1.5% lower expectation and neutral for the market. USDA's January 1 estimate of total Cattle On Feed was noted at 8.3% over last year. This is the largest COF for Jan 1 in six years.
As expected, cash cattle did not trade today before the report. Bids were moved up to $123 at last count before the trade so we would expect $1 higher trade at $124 when all said and done.
USDA estimated 588,000 head for the week via their poll of packers. That is under our 595,000 expectation discussed on the morning report. This is a low 1.3% over last year. The previous six weeks, impacted by holidays, ran 2.7% over last year. Allendale estimates a 4.9% larger than last year kill for Q1. This week’s shortfall in numbers was expected due to the early-week storm. The weak later-week pace is slightly bearish. The impact will be overshadowed by today’s COF report.
Allendale's Ryan Ettner presented our cattle outlook yesterday at the AgLeaders Conference. We see 2018 beef production at 4.6% over last year (27.372 billion lbs.). After exports, we forecast the amount left for each consumer at 3.3% over last year (83.7 lbs ). For the year, we see average cash cattle pricing at $116 ($121 in 2017). By contract...$118 Feb, $124 Apr, $120 Jun, $112 Aug, $110 Oct, $110 Dec. A full account can be had via the recordings that can be found on the conference page of our website. For an actionable recommendation for right now...lock in all feed.
In the short term, Allendale is slightly bullish. The recent storm and potential consumer buying based on increased pocketbooks may help. We are not expecting a repeat of last year in the spring. There are a lot of cattle hitting in the spring this time around. RN
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