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If the weather can bring weights more in line with normal and the weather turns more conducive for grilling, traders can expect a strong rally soon. The financial markets are signaling the possibility that the economy may be bottoming and consumer spending on beef may perk up as well. In the last 7 years, beef production for the 2nd quarter has increased from 400 million to 630 million pounds from the 1st quarter and for 2009, the increase is near the lower end of this range. This would suggest a normal seasonal up in beef prices for the quarter. Last year, beef production jumped by near 520 million pounds for the 2nd quarter. Boxed beef cutout values were up 92 cents at mid-session yesterday and closed $1.14 higher at $135.84. This was up from $135.39 a week ago. Last year, beef prices hit a low for the year on April 4th at $137.09 and managed to jump to $155.16 by April 22nd and to $174 into July. June cattle inched lower in quiet trade yesterday with a tight range. Traders remain concerned with the consumer demand on reports of the possibility of more bad news on employment this week but a firm tone for the beef market and talk that cattle weight-gain performance will be very poor this week helped provide underlying support. Harsh weather in the southern and northern plains could make feeding and watering difficult. Poor demand news was also offset by some signs of improving beef demand. The estimated cattle slaughter came in at 108,000 head yesterday which was well below trade expectations. This brings the total for the week so far to 355,000 head, down from 365,000 last week at this time and down from 367,000 a year ago. The uncertainty for the economy and sluggish marketings for much of the year has caused actual beef production to come in well above expectations but the poor weather in the plains in the past week could help ease the weight issue and any shift to more summer-type weather in the forecast could spark at least a temporary period of better demand.
TODAY’S GUIDANCE: The beef market is showing some signs of life and with June at a discount to cash, the market is looking somewhat under-valued. Short-term demand factors, especially weather, are bearish but this could change quickly in the weeks just ahead. A declining supply of all meats and pent-up grilling season demand should help support at least a bounce once the weather shifts.
TODAY’S MARKET IDEAS: Support for June cattle comes in at 81.35 with 82.35 resistance. A move through resistance leaves 85.30 as initial target.
