Cattle Analysts Advise First-Half Hedging

Some market analysts are advising clients to hedge first- and second-quarter fed cattle marketings as they see current prices near a top.

Wholesale beef and fed cattle prices each made contra-seasonal moves higher in December amid supply fears as total cattle slaughter dropped and slaughter weights declined.  Early December jitters about market retaliation from Mexico and Canada over mandatory country-of-origin labeling pressured prices early, but once this was removed by Congress, prices bounced.

And a wintry blast of cold air, rain, sleet and snow, especially in the Southern Plains, added to worries of tighter meat supplies just when retail grocers and restaurants decided wholesale prices had fallen enough and stepped in to cover January and part of February’s expected needs.

Those analysts now think the market has all the weather scare baked in and will be topping out soon.  In fact, this week’s futures market appears to be having trouble getting past resistance at the 100-day moving average, they said.

 

Steer, Heifer Slaughter Strong; Weights Down

 

USDA data show US steer and heifer slaughter remains strong, although slaughter weights are declining.  But to get wrapped up in a decline in slaughter weights could be seen as misguided since slaughter weights normally decline with seasonal temperature drops.

Federally inspected fed steer slaughter, at 313,128 head in the latest week was up 4,116 from 309,012 in the previous week and up 29,328 from the same week a year ago.  It even was 1,928 more than the 2009-2013 average for the week.

Fed heifer slaughter also was up from a week earlier but was below last year and the previous five-year average, according to USDA data.

 

Dressed Weights Declining Seasonally

 

Adding to the mix is USDA slaughter data showing fed steer dressed weights coming down since mid-October.  However, dressed weights remain above last year and the 2009-2013 average, and the decline can easily be described as seasonal.

In the latest week, federally inspected dressed weights were reported at 907 pounds per carcass, down two pounds from the previous week but eight pounds above the 899 of a year ago and 48.4 pounds above the previous five-year average.

So the analysts really do have a reason to call for hedging first-half feedlot marketings soon.  Once the recoil rally is done, there is little to recommend a long-term bullish stance.

 

CASH CATTLE TRADE QUIET

 

Cash cattle markets Tuesday were quiet as traders watched the futures and stock markets after China infused billions of yuan into its banking system to instill confidence.  Asking prices were around $140 per cwt on a live basis with dressed markets undeveloped.

Last week, cattle traded at $133 to $136 per cwt on a live basis.  Most trades were $134 to $135, up $9 to $12 from the previous week.  In dressed markets, cattle traded from $210 to $212, up $10 to $12.

The USDA reported sharply higher wholesale beef prices again on Tuesday in good volume.  Choice was up $4.25 per cwt from Monday to $222.31, and select was up $5.60 at $216.61.  The choice/select spread narrowed to $5.70 from $7.05, and there were 110 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $166.23 per cwt, up $2.46.  This compares with the Jan settlement Tuesday of $167.77, up $0.15.