wmeubank@ocp.kcmo.com
IRA EPSTEIN & COMPANY
223 West Jackson, 7th Floor, Chicago, Illinois
(October 21, 1997) CATTLE: This past Friday, October 17th, the United States Department of Agriculture (USDA) released the monthly Cattle on Feed report.
–Cattle on feed, a measure of current supply, are currently 13 to 14 percent above the 1996 levels.
–Placements, a measure of new cattle being placed into feedyards and an indication of future supply, are even with 1996 levels. However, it should be noted that cattle placed into the feedyards last year during the month of September exceeded record levels. Therefore, no change in placements relative to 1996 still represents a large increase in future supply.
–Marketings, a measure of current demand, are roughly 15 percent higher than 1996 levels. In this instance, 1996 marketings were extremely low.
–In summary, the USDA numbers indicate large supply and demand. Within the past few months, I believe the above average demand has actively supported cash cattle prices as larger supplies have become available. At the same time, cattle futures have eroded toward cash values.
As we move into the month of November many believe that strong demand will continue to support cattle prices. I, on the other hand, believe demand will subside as beef features give way to pork features. In my opinion, pork has become less expensive relative to beef at a time when holiday demand for items such as ham begin to increase. In addition, I believe cattle supplies will peak during the month of November.
Technically, December cattle futures appear to be consolidating in a triangle formation near previous contract lows at 65 cents.
In my opinion, resistance remains near 67.5 to 68.5 cents. I believe a failure near resistance and a penetration of previous lows near 65.5 cents will precede a decline to near 63 cents.
Basically, I believe large supply and weaker demand combined with a negative technical outlook will lead to lower cattle prices. However, I believe lower prices (if or when they occur) will provide an attractive opportunity to take profit on December or February short positions and position long the April or June contract.
Mike Peifer
Added to the WWW 10-24-97
Last updated on 10-25-97
Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com