INDUSTRY FACES MUCH LARGER
FED SUPPLIES YET...
Prepared by Hales Cattle Letter
Basis Levels Reflect Extremely Bullish Attitudes
Basis Swing Of $7 From Last Year
Even though placements have exceeded last year for the past several months, February futures reflect a much different market attitude than in late 1996. Last year, fear of increasing supplies built a sizeable discount in the December and February futures that lasted all fall. This massive premium of the cash market is shown in the basis chart.
This year, it is if the rules were rewritten. The factors that were bearish last year appear to be bullish this fall. With at least 600,000 more cattle scheduled for the first quarter of 1998 than last year, February futures are $2 over cash instead of $5 under like they were last year.
By the first of December last year, fed cattle were being sold as much as four weeks ahead of schedule as cattle feeders attempted to avoid the coming wreck. This year cattle feeders were aggressive sellers in October and November but for a much different reason. The yards were jam packed and needed pen space. They still are. Many yards here in Texas still have a two to four-week waiting list for pen space. Backgrounding yards are behind in shipments to finishing yards. Placements have not collapsed yet.
Feeders From Mexico
Feeder cattle imports from Mexico are the largest since 1995. Through the week ending November 22, 544,414 head have crossed compared to 298,797 last year. Reports show most crossing points are booked for several more weeks. There are always more cattle available for placement than anyone ever expects.
Steer Weights Peaked
Even though steer weights peaked in October they are still well above last year. Weights should stay above last year through the first half of 1998 unless the winter turns much wetter with yards much muddier than recent years.
With more fed cattle available from December through March and steer carcass weights above last year, beef production should stay well above a year-ago levels. Last December fed steer prices fell to $65 and then bottomed at $63 in February of this year. How can prices stay above these levels during the next 90 days?
What About Exports?
Banks and brokerage companies are collapsing in Japan. South Korea needs billions to bail out troubled banks and conglomerates. All of these currencies have lost purchasing power in terms of dollars. Beef, hides, and pork all cost these countries much more now. Every dollar decline in hide and offal values could cause an equal decline in fed cattle prices. Isn't it possible, at least temporarily, that the cattle and pork industries are producing for an export market that doesn't exist anymore?
November 26,1997David Hales and Tom Horton
Hales Cattle Letter
P.O. Box 1623, Amarillo, Texas
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