CASH UP $4 IN TWO WEEKS–
FUTURES DOWN $1
Prepared by Hales Cattle Letter
Storm Drives Fed Prices Higher
An early winter storm that hit Colorado, Kansas, and Nebraska late last week, forced cash prices sharply higher this week as packers scrambled for the storm reduced supplies. Without taking away from the financial loss and the serious problems suffered by the cattle feeders and feedlots in the storm area, the event is not the most bullish event of the 20th century. It hasn't started the next major bull market.
The death loss is serious, but it was mostly the light weight recent feedlot placements. They were to be fed supplies sometime in 1998. Finished cattle lost weight but very few died. With the warmer temperatures and dry windy weather during the next during the next week, much of the weight loss will be recovered. There are still over 400,000 more cattle to be slaughtered in the months ahead than there was last year. Beef production for the next 90 days has not been reduced to any significant extent.
Cash Surges To A Premium
This week's two dollar jump in fed prices was not followed by strength in the nearby futures contract. While the cash market found support from the storm, the futures market found weakness from the extreme volatility and uncertainty of the world's equity markets as well as the continuing E-coli saga. With uncertainty, fear walks hand and hand. Most companies will not maintain, much less expand, perishable inventories under those circumstances. In the short term, the new found beef consumers in developing countries may decide to switch back to what they were eating before they discovered their luxury food.
Weights Are Topping
Steer carcass weights normally top during the middle of October. This year will not be different, especially after the severe winter storm. However, the rate of decline will be much slower this year than last year. This will help to keep beef production during the next 60 days well above last year. Last year fed prices fell to $65 by late December. Why won't they see $62 this year?
Wet Winters And Chain Speed
Wet winter weather will reduce fed beef tonnage as cattle use more energy for staying alive and less for fattening. This is the bullish aspect of winter. However, it also has a bearish aspect as well. It produces muddy hides that are contaminated with bacteria that could eventually end in ground beef. This winter could be extremely critical. It appears that the USDA is fighting to prove to the politicians that it should control packing house inspections rather than the FDA.
The most important aspect of this winter's market may be what the inspectors do to the chain speed at the packing plant. If they slow it to make some political points, the industry may suffer more from a wet winter than a dry one. Packing plants might not he able to kill available fed supplies fast enough to stop a backlog of over-fed cattle. Slower chain speeds increase unit costs and reduce packer profitability. If the industry has an abundance of fed supplies, it is easier to buy cattle cheaper than force beef prices higher.
October 31, 1997David Hales and Tom Horton
Hales Cattle Letter
P.O. Box 1623, Amarillo, Texas
Copyright 1997, by Consensus Inc. All American and Pan American rights Reserved. editor@consensus-inc.com
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