Supply data will drive cattle, hogs

December 5, 2017 09:55 AM

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Live Cattle
USDA revised down its estimate of last week's kill. It was lowered from the initial Friday estimate of 649,000 head, what would be a new high for the year, to 645,000. We now have five separate weeks that have defined the upper end of this fall's supply range. Those five weeks all posted numbers from 645,200 to 647,700. Even with the lowered kill, it was 8,000 over our Friday morning estimate. Larger than expected supply was the main reason for Friday's limit down trade.

The normal Monday report covering last week's cash cattle trade noted the five area trade averaged $120.58 from those $119 - $121 sales. This was $1.61 over the previous week.

It was a little surprising to see the show-list estimate, the number of finished cattle in the feedlots ready for packers to buy this week, jump by 25,100 head over the previous week. Rising supply is not normally seen in December so this would be considered disappointing.

The weekly Monday afternoon Comprehensive Boxed Beef report showed that over last week, end users procured 26% less beef for the extended delivery period (+22 days) than last year in the same period. Lower than last year levels of extended delivery procurement have been seen in four of the past five weeks. This would seem to imply that end users are either not concerned about supply in the weeks ahead or that they are not getting that much demand interest. Either way, this updated news would be considered slightly is disappointing.

Boxed beef traded -5.00 and -4.24 last week for choice and select. It was up 2.20 and 1.93 today respectively though. That could encourage a higher open tomorrow. Given the general negative news from the show-list and end-user numbers, we would not expect much of a price rebound at this time.

On the charts, the action from Friday and today have pushed prices back below the uptrend line.

There is a bearish seasonal to note for live cattle futures. The February typically breaks hard from November 26 until December 10. On the June, this runs from November 27 until December 9. This break into the second week of December is typically the lowest price traded on those contracts all the way through their expiration. Seasonals suggest bears have another week before the best buy of the year is seen. This fits in with our fundamental based viewpoint that a few more days of lower pricing may be a buying opportunity.

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About the Author

Rich Nelson is Director of Research at Allendale, Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.