FED PRICES
SLIDE BACK TO $65
Prepared by Hales Cattle Letter
Prices Weaker Than Expected
Cattle feeders sold inventories earlier in the week and at lower prices than most market observers expected. The need for pen space in feedlots that are completely full helped to fuel this week's backward slide in prices. After next week, the need for pen space will ease up as the rate of placements slows. Most of the yearlings off grass will be shipped by the end of next week. However, a slowdown in the placement rate doesn't mean that fed prices will work higher. In fact, it may eventually push prices lower as cattle feeders fight the market and end up over-feeding cattle.
Beef Production And Prices
Today's chart shows the relationship between beef production and fed steer prices this year. When beef production fell below the prior year, prices went above the prior year. When beef production jumped above the prior year, prices fell below the prior year. However the relationship isn't as straightforward as it might appear. Fed prices peaked and turned lower a few weeks before beef production actually increased above 1996 levels. The marketplace isn't blind and it doesn't function in a vacuum. It is able to anticipate the changes in available fed supplies and beef production before they occur. This winter the marketplace will function as it should. A few weeks before beef production actually begins to decline, the marketplace will anticipate that event and fed prices will turn up.
Even though some analysts used this week's chart action in the futures market to forecast a higher trending cash market, they ignored the facts of the live market.
Record setting placements this summer and early fall has guaranteed an increase in available supplies of fed cattle from late October through February of 1998.
Steer carcass weights since late August have ranged from two to six pounds above last year's seasonal peak in October. Weights will probably peak this year about 15 pounds above last year. However, the big difference will be the rate of decline after the peak. Last year weights declined at a near record pace as cattle feeders sold cattle as much as 30 days ahead of schedule. This year the decline will be closer to normal since both December and February futures are still premium to fed steer prices. Last year's incentive to sell early doesn't exist this year. Steer carcass weights could average 25 pounds above 1996 levels during November and December. Considering that there are about 500,000 more fed cattle to sell this year than last year, beef production looks enormous in the weeks ahead.
Cow slaughter is below last year, but liquidation continues. As a result, cow slaughter will only decline about 250,000 to 300,000 head from the 1996 fourth quarter level. Not enough to offset the increase of beef production from fed cattle this year.
If the premium of futures to cash continues, fed prices may stabilize for a week or two as the cattle feeder fights the market. That will only make prices lower in November. Fed steers should fall to $62.
October 10, 1997David Hales and Tom Horton
Hales Cattle Letter
P.O. Box 1623, Amarillo, Texas
COMMODITY FUTURES FORECAST WEEKLY REPORT |
DEAN WITTER FUTURES COMMENTARY
THE LATEST COMMITMENT OF TRADERS ANALYSIS FOR CURRENCY CONTRACTS
MYERS ON FUTURES |
NIKKO MARKET COMMENTS
SCHAEFFER'S RESEARCH REVIEW
FED PRICES SLIDE BACK TO $65
MONEY VERSUS DEBT TWO AGGREGATES DIVERGED
STOCKMARKET CYCLES |
WEEKLY OUTLOOK
INTEREST RATE WATCH |
THE ALLENDALE ADVISORY REPORT
NIKKO MARKET COMMENTS |
THE REAPER
Copyright 1997, by Consensus Inc. All American and Pan American rights Reserved. editor@consensus-inc.com
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