wmeubank@ocp.kcmo.com
(May 7, 1997) LIVE CATTLE: One sure sign that Spring has finally arrived is that farmers have over 50% of the corn crop in the ground already, as reported Monday, by the USDA in their weekly Crop Progress report. With that much corn in the ground they must have really been going to town with their planting. Last year at this time only 40% was in the ground. The five-year average is only 30% at this time of year. So it is a small wonder that as the price of corn has chopped and drifted sideways to lower, feeder cattle has been making new contract highs off and on since April 22nd.
I believe that the high price of pork has caused retailers to feature more beef. Packers operating margins in pork has gone into the red, but the continuing firm demand of boxed beef has kept that part of the packers margin in the black. As of this writing, according to FWN, the five-day average for boxed beef is $106.78 and $106.62 for choice. If demand for boxed beef continues at this pace, demand for live cattle will continue and there should be no problem with feedlots backing up.
This week traders came to work thinking that packers would probably hold off to buy until later in the week, as they did last week. What a surprise they had when on Tuesday 49,955 cattle moved in the Texas Panhandle/Oklahoma at mostly $69.00. Also 46,000 in Kansas, at $69.00 and 40,000 in Nebraska at $68.50 to $69.50!
With talk that the cash won't trade over $69.00 this week the June live cattle futures slowed after testing its high of $65.65. As I've stated in my last couple of reports, the front month futures usually have a premium of $1.50 towards expiration. While we have plenty of time before expiration, Memorial Day is only less than three weeks away! Demand for beef into Memorial Day should only last another couple weeks.
RECOMMENDATIONS--The increase in demand I've been expecting looks like it has finally arrived. With cash at $69.00 1 don't think the June live cattle has much potential to rally from here. Memorial day weekend is only a couple weeks away. I'm recommending buying June live cattle on a test of the $64.50 area. Place a stop below $64.00. On a test of the highs, sell June live cattle at $65.65. Place your stop above $65.80.
Long-term traders may find this interesting. According to Moore Research of Eugene, OR, if you had bought August feeder cattle on May 3rd and held it until August 16th, thirteen out of fifteen years you would have had a successful trade.
Les Jones
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