Traders hoping for strong cash rally, but meat supply burdensome, analyst says
Cattle processing numbers expected to go higher.
By Terry Roggensack, Successful Farming
Agriculture.com - 7/29/2020
Traders seem overly optimistic that cash cattle can trend higher over the near term.
Cattle slaughter over the past two weeks has come in below year-ago levels while the show list this week is smaller, and these factors have traders hoping that cash can trade up. However, with the huge supply of cattle on feedlots forecast for a long time, expecting slaughter to remain under year-ago levels seems unrealistic. Instead, the data suggests that slaughter should begin to come in well above year-ago levels.
Keep in mind that the July 1 supply of cattle that had been on feedlots for 120 days or longer was 4.858 million head, up 16% from last year and up 24% above the five-year average. Weights remain well above last year and the five-year average as well.
Cash live cattle are trading a bit softer this week. In Kansas 5,037 head were reported yesterday at $95-$97.5 and an average price of $96.4, down from $96.75 on Friday but up from $95.73 a week ago. In Texas/Oklahoma, 878 head traded at $95, down from $96 on Friday.
The USDA boxed beef cutout was up 84˘ at midsession yesterday and closed 41˘ higher at $202.96. This was up from $200.88 the previous week and was the highest the cutout had been since July 13. The USDA estimated cattle slaughter came in at 119,000 head yesterday. This brings the total for the week so far to 236,000 head, up from 235,000 last week at this time but down from 239,000 a year ago.
Slaughter has been coming in below last year over the past several weeks, but with the large supply of cattle that have been on feedlots for 120 days or more, traders expect production levels to remain high and for slaughter to begin to push well above last year. October cattle resistance is at 105.85, with support back at 103.15 and then 101.90. Consider selling calls or futures on any bounce.
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