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IRA EPSTEIN & COMPANY
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(November 19, 1997) LIVE CATTLE/FEEDER CATTLE: For the last couple of weeks the live cattle complex has lacked a clear direction. Many traders had hoped that the USDA's November “seven state Cattle on Feed report,” released last Friday, would show a decrease in cattle due to last month's blizzard. What the report showed was that while a number of cattle were killed during the storm, the report was judged neutral to bearish and we are in the same boat we were in last week. Lacking clear direction.
The USDA estimated in their monthly seven state Cattle on Feed report that all cattle on feed was at 110% of last year. Most traders were expecting 109.2%. Placements were estimated at 96%. The average estimate was at 95.7%. Marketings were put at 107%. Most traders were looking for a number closer to 111%. Other than the marketings number being off, the report was right as expected.
Unless packers have orders to fill, most weeks they hold out until Thursday to do their buying. This often leads to a stand off between packers and feedlots. This week was no different.
Amarillo, TX reported a few sales as of Tuesday. Packers bids were at $65.00 to $66.00. Feedlots were offering $69.00 to $70.00. It was a similar story in Omaha, NE and Dodge City, KS. Showlists are reported to be current. Whether or not they are will help determine who will throw in the towel first. Showlists are estimated to be at 82,300 for KS, 71,500 for TX and 86,000 for NE.
The one thing that seems obvious to me is that there are plenty of cattle around. Until now demand has supported the market. However, at this time of year beef is going to get a lot of competition at the retail level from turkey and pork.
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. 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 looks good to me. According to Moore Research of Eugene OR. if you had bought June lean hogs (live hogs in previous years) on or around November 21st and held them until January 30th, 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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