wmeubank@ocp.kcmo.com
IRA EPSTEIN & COMPANY
626 West Jackson, Chicago, Illinois
(November 12, 1997) LIVE CATTLE/FEEDER CATTLE: Following the winter storm that buried the plains in late October, the cash cattle market found packers paying up to $70.00 for slaughter steers and heifers. Only a week later and packers, knowing that demand should wane due to the season, dropped their bids to the $66.00 to $67.00 range. Feedlots suffering from a loss of inventory among other things kept their bids at the $70.00 to $71.00 level. Eventually, what business was done last week, was done mostly at the $69.00 level. Feedlots, while they remained current last week, are finding themselves in the same boat again. Traders, like packers, are fully aware that we are in the ham and turkey season. Consequently, I believe they have priced $68.00 cash cattle into the December live cattle and with the USDA due to release the November seven-state Cattle on Feed report Friday, are reluctant to trade out of a range.
Following the close of trade today, Amarillo, TX reported 22,100 cattle moved at $68.00. Dodge City, KS reported 25,900 sold at $67.00 to $68.00 and Omaha, NE reported 17,200 sold at mostly $67.00. Boxed beef values continue to rain on the parade. Today the USDA reported 362 fabricated loads sold at $104.94, down $.34 and $103.95, down $.90 for choice. They reported select to have sold at $94.59, down $.06 and $94.72, down $.55. Numbers like these indicate to me that the packers are buying hand to mouth. In other words, they only want on hand what they feel they can turn around quickly. And unless we see demand pick-up or more severe weather, the cash may continue to decline for the next few weeks.
The Cattle On Feed report will answer several questions plaguing the mind of this broker. The number of cattle lost in the October blizzard is still up in the air. I've seen estimates of 40,000 to 80,000. Hopefully this will put this question to rest. There is still a huge supply of cattle. Last year's November placements figure was a record. The average estimate of placements is 95.7%. Any figure above or closer to 100% I believe will not be well received. The Cattle on Feed and marketings estimates are both expected to be over last year's figures. The average estimate for cattle on feed is 109.2%. The average estimate for marketings is 111.1%. Marketing data is a good yardstick for measuring demand in the nearby or spot futures month. While the on feed number is bearish in itself, compared to the numbers from past months it may be considered friendly.
Month On Feed Placements Marketings October 114% 100% 114% September 119% 107% 106% August 119% 118% 109%
RECOMMENDATION–With turkey and ham season here, I don't see the December live cattle trading much higher than $68.00 in the near term. Assuming the November Cattle on Feed report is as expected, I believe the $66.50 level is a relatively good value, while the $69.00 level is over priced. I am recommending to buy low and sell high. Buy December live cattle near the $66.50 level. Sell December live cattle near the $68.00 level. Place stops below $66.00 and above $69.00.
With turkey and ham season here I believe demand should pick-up for the pork. This trade still looks good to me. According to Moore Research of Eugene, Oregon, if you had bought April lean hogs (live hogs in previous years) on or around November 7th and held them until January 29th, 13 out of 15 years you would have had a profitable trade. While this is an outstanding average, there is risk involved. Remember nothing lasts forever.
Les Jones
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