Cash cattle trading occurred in Nebraska Wednesday at mostly $138 with early sales at $139. That was down from $141 to $143 sales last week. There was also talk of $86 cash sales starting in the live-based Texas trade. That would have been $2 lower than the bulk of last week's trade.
Allendale watch's weekly weight data to track how well feedlots are doing in moving ready cattle. Last year's winter weather caused severe disruptions in weight gains so we will certainly be larger than 2007 levels into summer. We have instead been comparing weights to 2006 levels. Around six weeks ago we saw this year's steer weights start to pull away from 2006 levels. That coincides with the disappointing peak in cash cattle five weeks ago at $93. The latest information available shows steer carcasses at 831 lbs, which is a full 10 lbs over 2006 levels. This would suggest feedlots have not been holding a few cattle from weekly sales. It also means feedlots were in a bad position in front of Monday's Planting Intentions report. A big jump in corn prices, as implied by the report, may have been the final straw. Now we could see feedlots give up on those extra numbers that were not marketed, as they should have been. The result is bearish as it means a few more cattle being sold this week and likely next. Being realistic we certainly have seen much worse delayed marketing problems. However, this comes at a time when we are facing more cattle from a seasonal perspective (winter to summer), a percentage increase from last year (due to extra winter placements), and what is a pressured demand environment (due to the economy). We would like to say the improved barbeque demand period will save the day, but economic concerns appear to be the ruling factor for now. We are still bearish and have an $82 to $85 downside objective for the June. It is hard to believe that could be reached sometime this week. Having said all that bearish news we remain bullish for the long term (second half 2008). Higher corn costs and bad breakevens on outgoing cattle should finally make feedlots buy fewer feeder cattle for feeding. March placements may be down by 10% or more. This new lower placement trend should continue. That is why we are 100% covered through August using the June and August contracts but have no coverage on marketings after August. As we reported Thursday morning, we have good news to report on the beef export side. A South Korean trade official noted they could have the Free Trade Agreement, and therefore the expanded beef with the US, done by May. For trading we feel those short June $94 and $95 calls, we recommended earlier, will likely expire worthless which would be good for that position. Also, speculative traders may be interested in bear spreading (selling June and buying October or December).
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