Higher cattle prices in 2011?It has been some time since I addressed live cattle and feeders.
It has been some time since I addressed live cattle and feeders.
Seasonally, cattle futures tend to rally into the first full week of December. Thus far, this year’s behavior for cattle futures going into December appears to be fully seasonal. The cash market has been rising along with an explosive move in the choice/select spread along with an aggressive chain speed.
Packers have shown they are willing to pay up for cattle, even when I hear rumors that meat may be backing up. Traditionally, cattle prices slip from about Dec 5 to 8 into Christmas and perhaps into the new year. December cattle closed the week on highs and it appears prices will be higher. The all-time high on a December contract is $115.35, so higher highs here could push this market in early December to $105.
The export market appears to be good and the trade already is poised on the long side of the market. The April contract has been trading near a $1 per hundredweight below the all-time peak on the weekly Five Area Live free-on-board steer prices. Many analysts are anticipating new all-time highs this coming spring. I find it intriguing that the funds and specs are so willing to chase this market and continue to build longs. Somewhere along the way, there should be a chance to step onto the long side of this market. After all, these markets are all about timing.
While the large spec pared its long length over the past three weeks by 12 percent and 24 percent over the last nine weeks, there still are nearly 89 percent of large speculators in the cattle market positioned on the long side.
Therefore, cash cattle prices need to mount a rapid campaign to higher prices or cattle prices are going to stall. As we go into 2011, I have no doubt that cattle prices will push higher, but perhaps the last half of the year is where that bullish attitude deserves to be placed.
The Australian dollar has been strong this year vs. the U.S. dollar, and this has held the U.S. on the top step for exports and Australian beef out of the U.S. market. For the past three weeks, I have been bullish towards the dollar and predicted that a low was eminent. That appears to have occurred. As the currency changes take place, we may see a slight improvement in imports of Australian beef.
Last winter was on of the worst since the ’60s, and that, along with poor-quality corn, kept weights this year below the previous year. While that trend hasn’t changed much, the future looks different.
With good-quality corn from this past harvest and reports of fabulous weight gains on a combination of good quality corn and mild weather (also expected in cattle country this winter) carcass weights could increase by 10 to 15 pounds over the past January to February period and even more as we go into spring. Remember, the winter in January to March really stunted gains. Beef production should gain significantly in the first four months of 2011.
Also note that deferred contracts are carrying nice premiums, and unless corn gets astronomically high, the incentive to feed cattle longer may happen. However, the economy appears to be improving, and along with that should be an increase in beef demand.