Friday’s monthly cattle on feed report was considered bearish, as the on feed placements were reasonably higher than expected. The drought in Texas and Oklahoma had traders expecting higher placements since pasture grazing simply was not an option. The 122.5% was still 4% higher than most estimates. Placement of light weight cattle was expected but the surprise came in the 600-700 lb category. November and December production therefore may also be higher than anticipated.
The initial reaction may be to bring the October/December cattle spread back in to last weeks’ lows of October discount $.90 to the December contract due to the better than expected marketing’s figure. After the report came out I checked with one of my sources who has been in the cattle business longer than I have been in grains to get his opinion. I was somewhat surprised to hear him talk about a 6 to 7 dollar drop in the flat price of cattle by October. There seems to be a difference of opinion among cattle traders over the importance of the demand factor in gauging market direction or the depth of a correction. Some feel it is more important to concentrate on the supply side. I however remember years ago, before pork was the “other white meat” telling a hog producer to go to the grocery and pick up at least four of the current “ladies magazines” to get an idea of the current trends being touted to the American homemaker. Low fat was the “in thing “, he and later the pork industry got the idea.
Demand is, I believe an important part of today’s equation in analyzing any market. We currently still have a weak economy which dictates spending power. Watch TV to see how many adds you see for hamburger helper.
We will be entering the December/ October spread if we get a rally back to $.90Â or a close below $2.00 October under December.
For additional in depth analysis call Monika Riley at (312) 264-4352 -or- reach her at mriley@pricegroup.com.
Questions? Ask Monika Riley today at 312-264-4352
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