Record Run In Cattle/Beef Continues

January 16, 2014 12:32 AM

What Traders are Talking About:

Overnight highlights: As of 6:30 a.m. CT, corn futures are fractionally higher in most contracts, soybeans are 3 to 6 cents higher and wheat futures are narrowly mixed. Given the quiet trade overnight, weekly export sales will set the price tone through the daytime hours. Cattle futures are called higher amid surging boxed beef and cash cattle prices. Lean hog futures are expected to favor the upside on spillover from cattle.


* Record run continues in cattle/beef. Boxed beef prices are surging to all-time highs on a daily basis, which is pushing cash cattle prices to record levels. Choice boxed beef prices have surged $14.49 over the past week to a record $224.62, while Select beef is up $14.84 to a record $221.91. With wholesale beef prices surging, packers margins have moved into the black for the first time in a long while. The effect has been a surge in cash cattle prices to record levels. Initial cash cattle sales got underway in the Plains yesterday at $141 to $142, mostly $2 above last week's then-record prices. With wholesale beef and cash cattle prices rising to record levels, cattle futures are well supported and front-month futures have moved to a new high on the weekly continuation chart.

The long and short of it: Conditions are extremely bullish in the cattle market now, though the rally won't last forever. Tight supplies limit downside risk once the market eventually put in a short-term top. Demand will determine how high the cattle market ultimately rallies.

* Soy demand remains strong. Soybean export demand, fueled by aggressive Chinese purchases is well known. Total soybean export commitments are already above USDA's forecast for all of 2013-14. But domestic demand is also very strong. NOPA reported December crush came in stronger than expected at a record 165.384 million bu., which was up 3.3% from November and 3.4% greater than year-ago. Strong margins are giving crushers incentive to process as many soybeans as they can get their hands on.

The long and short of it: Strong export and domestic soybean demand points to USDA having to further raise its usage projections for 2013-14. If that happens, it would tighten carryover. That expectation is keeping old-crop soybean futures well supported.

* India expected to export more wheat. With record wheat production expected this year and the government sitting on bulging wheat supplies, India is expected to allow more wheat exports soon. A government source tells Reuters that decision is likely in March, without indicating how much more wheat is likely to be freed up for export. Currently, the Indian government is allowing 2 MMT of wheat exports from state-run trading houses, of which, roughly half has been sold amid solid demand.

The long and short of it: The realization global competition for U.S. wheat is building is keeping wheat futures under pressure. It's going to be extremely difficult for wheat futures to post a sustained rally given the global supply situation.


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