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Cattle Fundamentals Turning Supportive
Quietly gaining traction in the background of the spring crop planting delay are live cattle futures. After losing over $15 a pound since April, prices seem poised to be forming a bottom. The sell-off for the past two months was due to ample second-quarter supplies. Now as we start third quarter with eyes on fourth quarter, the fundamentals appear to be shifting to lower supplies and ample demand.
According to beefboard.org, “Final figures in 2018 beef production are expected to be up 2.8% from 2017 – the second highest on record after 27.1 billion pounds in 2002 – and are forecast to be up 3.3% in 2019.” So while supplies overall are up, the market seems to have absorbed that news, and may now be focused on the future. The USDA believes at the end of 2019 and into the first quarter of 2020, beef production will be reduced by 505 million pounds, which would be the second-largest drop on record. It would also likely support the February 2020 live cattle futures.
On the demand front, “Strong consumer beef demand is expected to continue through 2019, with the USDA predicting consumers in the U.S. will eat 8.9% more beef this year,” as suggested by beefboard.org. Looking at exports, beef for the week ending June 27, 2019, came in at 18,700 MT. That’s up 24% from the previous week and up 13% from the prior four-week average.
The month of July will have two important cattle reports to monitor. The first is the Cattle on Feed report released on July 19, 2019. Also released that day is the Cattle Inventory Report. This biannual report contains the inventory numbers and values of all cattle and calves, number of operations and size group estimates by class and state, as well as for the entire United States. There are also statistics on cattle on feed and grazing on small grain pasture, as well as calf crop data. This will be important as it will show an updated snapshot of the cattle lost in the spring flooding.
So while the fundamentals are turning supportive, we need to focus on both supply and demand in the coming months. Trade deals are important; be aware of increased competition out of Brazil. I know I’ll be doing my part to help with demand, with this improved weather, steaks will be on the grill tonight.
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