Cattle Supplies Tightening

November 20, 2008 06:00 PM
 

Julianne Johnston Pro Farmer Senior Markets Editor


From Pro Farmer

Updated as of 7:00 a.m. CT

COF Report this afternoon...  Focus in the cattle pit has been on outside markets and concerns beef demand will soften due to poor economic data, instead of tightening feedlot supplies. But this afternoon's Cattle on Feed Report will serve as a reminder supplies are below year-ago levels and will tighten as we head into 2009. That doesn't mean it will return focus to the feedlot situation, but it could cause traders to reevaluate positions -- especially since nearby contracts hold a discount to the cash market.

Report expectations

Avg. Trade Guess

Range

% of year-ago levels

On Feed

93.9%

92.0-95.0%

Placements

91.1%

83.0-95.0%

Marketings

95.1%

93.0-97.3%

Make sure you check "Leading Edge Reports" following the 2:00 p.m. CT release of the report for full details and analysis.

 

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Opening calls. These calls originate more than three hours before the open -- use caution, things change:

Corn: 3 to 4 cents lower. Futures were lower overnight on spillover from yesterday's losses. Futures gapped sharply lower yesterday and slightly extended losses to finish mostly around 15 cents lower. Corn was pressured by spillover from outside markets. Crude oil futures dropped to its lowest level since May 2005. March corn gapped lower on the open and posted a new contract low of $3.77.

Soybeans: 2 to 4 cents lower. Futures were lower overnight on spillover from yesterday's losses. Futures finished 40-plus cents lower yesterday due to outside market influences. January soybeans gapped below last week's low of $8.73 and extended losses. Next support lies at $8.76, which is just above support at the October low of $8.38.

Wheat: 3 to 6 cents lower. Futures were lower overnight on spillover from yesterday's losses. Futures gapped slightly lower on the open yesterday and closed near opening levels. Chicago wheat closed mostly around 15 cents lower. Futures saw spillover pressure from neighboring pits and outside markets. The dollar strengthened yesterday to challenge the November highs. March Chicago wheat futures violated support at the October low, but closed above that level. A close below $5.25 would open additional downside risk for the market, with the next level of support at $5.00.


Cash cattle expectations: $5 to $6 lower. Cash cattle trade turned active at $87 Thursday afternoon -- $6 below the bulk of last week's trade. While feedlots sold cattle well below breakeven, there's fear the sharp plunge in cattle futures will cause more near-term pressure on the cash market.

Futures call: Mixed. Futures are called to open mixed following yesterday's strong gains, but spillover support is possible as traders even positions ahead of this afternoon's COF Report. Early pressure in the cattle pit came on spillover from the Dow, as it opened lower. But as the Dow recovered in mid-morning trade, cattle saw short-covering support. The Dow ended lower yesterday, which could result in weakness this morning.

Cash hog expectations: Mostly steady. Cash hog bids are expected to be steady to lower across the Midwest to close out the week as packers have this week's slaughter supplies secured and need fewer animals next week due to the Thanksgiving holiday. Packers will attempt to strengthen margins so they have more room to increase cash hog bids if they find themselves short-bought on supplies coming out of Thanksgiving.

Futures call: Firmer. Futures are called firmer on spillover from yesterday's bullish reversals. December hogs have widened the premium they hold to the cash index to around $4, which opens the door for downside risk if the cash market softens again. The CME lean hog index is projected down 21 cents to stand at $52.52. February lean hogs posted a bullish reversal to penetrate resistance at last week's high. Spillover support this morning would confirm an upside breakout above the downtrending channel.


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