Red Hot Beef

Published on: 16:10PM Jan 24, 2014


Market Watch with Alan Brugler

January 24, 2014

Red Hot Beef

Cattle futures traded at new all time highs this week, reinforced by record high prices for wholesale beef which in turn allowed packers to pay record prices of $150 per cwt for cash cattle. The speculative community has been aiding and abetting the rally, with the managed money spec funds now holding a record larger net long position. All of this is setting off warning bells, at least in my head. US consumers historically haven’t been willing to pay much more than $2.00/pound for the whole carcass average, and $5 for the retail average. Even with extra jingle in their pocket courtesy of lower fuel prices (thank you fracking and ethanol!) they have a pronounced tendency to switch to more pork and chicken when the price ratios get out of line. The question is merely one of timing. How soon does that reduced disappearance get back to the wholesale replacement orders and match the reduced supply?

Cattle futures surged to new all time highs, gaining 2.17% on top of 2.67% last week. Feeders were up 70 cents or 0.41%. Cash cattle traded at $150, up $18 per hundred from where they were in December.  Weekly slaughter was down 4.3% from the same week in 2013, with beef production down 4.4%. Year to date beef production is down 10%, partially due to a smaller number of slaughter days.  Estimated carcass weights are now even with year ago, as packers have been aggressively pulling cattle ahead to fill the hole in numbers. Wholesale beef prices were up another 2.4% in the Choice boxes and 3.0% in the Select. The CFTC commitment of traders report showed managed money accounts getting longer, adding 4,799 contracts to their net long position.  The current managed money net position is now 123,655 contracts. The Friday night USDA Cattle on Feed report showed larger placements and smaller December slaughter than expected by the trade overall, resulting in January 1 numbers that were 94.7% of year ago.

Corn futures picked up 5 cents per bushel this week, a 1.3% advance. Low prices continue to work to cure low prices. Imports have been zero for the past 16 weeks, as US prices have been cheaper than those in Brazil. Ethanol plant margins are still very attractive, and average daily ethanol production rebounded to 905,000 bpd last week. Ethanol stocks did rise back above 17 million barrels.  Total commitments as a % of total exports are now at 82 compared to 74% at this time last year and the 5 year average of 60%.  Weekly export sales were above the upper end of pre-report estimates, at 693,000 MT. According to the CFTC on Friday night, managed money accounts decreased their net short position in corn by 4,606 contracts, bring their position as of last Tuesday’s close to the least bearish reported position since August.   

Soybean futures lost 2.4% for the week in the nearby March contract. Weekly US export sales were a larger than expected at 1.673 MMTG (61.5 million bushels) including 703,400 MT of old crop. There were cancellations of 302,100 MT from the "unknown destinations" slot, but China bought 295,700 MT of additional old crop US beans. Total US export Commitments as a % of total exports are now at 104% of the newly revised USDA forecast for the year. They would typically be at 82% by now, although last year was 91%. South American planting activity is just about wrapped up, with 3-4% of the Argentine crop remaining as well as whatever double crop Brazil will do after first crop beans come off. SAFRAS raised its estimate of Brazilian soybean production to 91.8 MMT (USDA @ 89 MMT), while the BA Grain exchange put Argentina at 53 MMT vs. USDA at 54.5 MMT.

Two of the three wheat futures contracts in the US eked out gains this week.  Chicago was up 0.3%, and KC gained 0.8% on winter kill concerns. Spring wheat has no such concerns, but does have a lot of Canadian competition. It was down another 0.7% for the week. Total US export commitments are still a larger % of the USDA forecast than usual for this date, currently at 83% vs. the five year average of 81%.  Weekly wheat export sales through January 16 were 413,400 MT. The EU has approved more than 16.7 MMT of export licenses this year, vs. just a little over 11 MMT a year ago.
















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Hog futures were up 0.23% for the week, getting a very modest assist from skyrocketing beef prices. Pork production this week was 7.1% larger than the same week in 2013, although 1.5% smaller than the previous week. Estimated slaughter totaled 2.222 million head, up 4.2% from last year. Estimated carcass weights have ballooned to 214 pounds as packers are looking for tonnage. The pork carcass cutout value was up $0.60 or 0.69% this week, with pork butts the strongest component. USDA weekly export sales for pork improved to 14,700 MT for the reporting week ending January 16.

Cotton futures rallied another 4.8% this week. Global ending stocks are still projected to be record large at more than 97 million bales or a 10 month surplus. Weekly export sales for the week ending January 16 jumped to 551,700 RB with nearly 90% of the total slated for 2014.  Another 8,300 RB of 2014 Pima export sales were reported. Export commitments as a % of total exports (for upland cotton) are now at 76%, which compares to 77% for this point last year, and lagging the 5 year average of 79%.    The CFTC weekly commitment of traders report showed managed money accounts added 7,788 contracts to their net long position, taking it to 49,319 contracts.

 Market Watch

We come into the last full week of January, expecting the usual end of month position squaring moves. Usually that means funds selling (or buying back) some of their big winners and taking new positions in January’s losers. Cattle would be vulnerable to that type of profit taking type selling, with the caveat that Feb futures can’t go down much without an expectation that wholesales prices and cash cattle prices also retreat. Monday action in livestock will be driven by reactions to the COF report released on Friday.  January feeder cattle futures will expire on Wednesday. Grain producers will get the usual Export Inspections report on Monday and weekly Export Sales on Thursday morning. Commodity markets in general will also be anxious to see the outcome of the FOMC meeting on Wednesday and whether the Fed sticks to its guns about the economy getting better (and tapering continuing).

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