A look at the cattle marketSince this column is being written before the release of USDA’s October supply and demand report, I will write about a market that I have not addressed in some time.
Since this column is being written before the release of USDA’s October supply and demand report, I will write about a market that I have not addressed in some time.
In August, cattle futures hit a major price projection and did so on all contracts through April 2011. Technically, with the psychological resistance of $100, cattle futures have seemed unable to press through to the topside.
There were two major cattle traders said to be short this market session. Since mid-September, one was said to have rolled his shorts via spreading to the April contract.
The other remained short in the October up-front contract. This didn’t seem plausible to the average Joe, but sometimes, these guys carry a lot of power, and making deliveries is second nature to them.
The cash market the week of Oct. 4 was a full two dollars lower than the previous week. A feedlot selling cash inventory that has been hedged Sept. 29 and then buying the board back Sept. 30 could have done so at a break-even price.
Normal basis for this time of year is for October futures to trade premium to cash. Until now, that hasn’t occurred this year. Cash has been over board price and, basically, the market is a hedger’s delight. Steer carcass weights declined one pound to 852 pounds from the week of Sept. 26. Heifer carcass weights declined three pounds to 778 pounds. So, according to data released Oct. 7, steer carcass weights now are 15 pounds under last year and one pound below the five-year average, while heifer carcass weights are 22 pounds under last year and six pounds under the five-year average.
The dollar slid the week of Oct. 4 to a price level that, I believe, should be in the window of major support for a rally. The dollar can slip a bit more, but I wouldn’t short the dollar with wooden nickels.
With the dollar at 15-year lows against the yen and the Euro, also at a major count on the upside, I would expect to see good exports on beef and poor imports. Still, this market has struggled.
Looking back at cattle charts, futures hit major downside counts and, much to the amazement of the trade, futures and cash staged a major bull market. Pork made the same move. Therefore, the price counts on the upside of this market carried a much heavier club than if there had been a prolonged sideways market similar to that of soybeans.
Pork has become a very seasonal market as weights pick up during the fall.
Too much pork and poultry production this year, with next year forecast to increase 2.6 percent, may be playing a hand in holding beef backwards at a time of year, when beef prices normally would be stronger.
In the past six weeks, egg sets have been on average 4.3 percent higher.
For the week of Sept. 25, producers set 5.3 percent more eggs than the same week a year ago. Poultry producers have been plucked by measures taken by China and too much poultry, which will have an effect on all meats, especially pork.
Still, I hear high-end restaurants are experiencing a better surge in business. That is good news for the beef producer, but we need good business on all levels.