CATTLE: Seems to Have Fundamentals to Move Up Short-Term
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It should not take much in the way of positive news to turn the cattle market higher. The USDA boxed beef cutout was up $1.45 at mid-session yesterday and closed 81 cents higher at $262.41. This was up from $257.05 the previous week and was the highest it had been since February 21. The cutout has increased in 11 of the past 12 sessions. June cattle held key support at 134.37 yesterday and saw a solid recovery. With a
positive tilt to beef prices this past week, the cash cattle market may find some support in the coming weeks. Cash live cattle are trading a bit firmer than they were a week ago. As of Thursday afternoon, the five-day, five-area weighted average price was 139.34, up from 139.10 a week prior. Keep in mind that US beef production is expected to decline 170 million pounds from the first to the second quarters. This would be only the second time since 1987 that production has fallen during that timeframe. Second quarter production is normally 200-400 million pounds higher than the first quarter. This unusual decline suggests there will be a stronger than normal seasonal increase in June Cattle prices this year.
Traders have been concerned about demand given the surging prices for food and energy, but the discount of futures to the cash market may have provided some support. For the Cattle on Feed report today, the average trade expectation for February placements is +6.5% from last year, with expectations ranging from +4.5% to +9.8%. Marketings for February are expected to be 3.4% above last year (range -1.1% to +4.5%). Cattle on feed supply is expected to be 1.6% above last year (range +0.8% to +5.9%). This would put on feed supply at a record 12.196 million head. The USDA estimated cattle slaughter came in at 122,000 head yesterday. This brings the total for the week so far to 488,000 head, down from 500,000 last week but up from 477,000 a year ago. US beef export sales for the week ending March 17 came in at 27,546 tonnes, up from 19,654 the previous week and the highest since May of last year. Cumulative sales for 2022 have reached 447,000 tonnes, up from 422,500 a year ago and the highest on record for this point in the year. The five-year average is 321,000. The largest buyer this week was South Korea at 9,027 tonnes, followed by China at 7,592 and Japan at 5,994. South Korea has the most commitments for 2022 at 125,900 tonnes, followed by Japan at 89,000 and China at 81,600.
MARKET IDEAS
Export sales are impressive and remain on a record pace this year, and the expected shift lower in production for the second quarter is supportive. The beef market rally may support higher cash cattle trade in the coming weeks. June cattle support is at 135.72, with 138.62 and 139.15 as resistance. A move above 138.32 in August Cattle would turn that chart bullish.