Beef Market Advisor

Wednesday, September 15, 2004

Corn and Cattle Market Analysis & Outlook

15 Sept 2004

The corn market has made new lows below the $2.25 contract low on the December futures, and I suspect this market will test the $2.00 level. Short hedges should be in place or should have been replaced on the recent and second rally to $2.45 if they had been lifted near the important $2.25 support plane. I do not expect a price plunge but the estimates of this crop are likely to increase as we move into October and beyond. Producers will see low prices and farm program payments are likely to be large for corn producers this year. Users of corn get helped by all this, and I would continue recent advice to stay off long hedges until we see this market start to build some type of bottom, likely after harvest and likely close to or below the $2.00 level on the December contract.

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Most cattle sold in the $80 to $82 range last week, but late-week sales started to look better with $83 fairly common and even some $83.50 prices on a few pens of cattle. The futures market was surprised by the strength in the cash market and price jumped on live cattle and feeder cattle futures on Friday and closing prices were up again on Monday. Tuesday's session is holding or extending the gains. Monday's boxed beef values were up from Friday and morning prices were sharply higher on Tuesday. Improved boxed beef values may be what will be needed for these cattle markets to turn higher again. But the discovery of another case of BSE in Japan casts some bearish overtone across the complex, with the possibility of some pressure on cattle prices and some help for hog prices during the week.

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The feeder cattle market will be hard to break, especially with corn getting cheaper. As we move toward the herd building phase of the cattle cycle and some heifers are held for breeding, it is calf and feeder numbers that will be ³tight² and will constrain how many cattle we have on feed. If the Japanese markets open again and exports grow as expected, we could see domestic per capita consumption of beef come down toward 60 lbs across the next 2 to 3 years, and that would be the lowest levels across the past 40 years. The big message here is that tight numbers and cheap corn will keep feeder cattle well above the fed cattle prices as feeding margins get bid into high priced feeder cattle. The current $111 level on October feeder cattle is nearly $30 above the current cash fed market, however, and is $22 above the $89 price on the February live cattle futures. Those premiums are big and I would want to have short hedges in place on feeder cattle through November.

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The Markets
Slaughter cattle prices in Kansas were $2 higher on a live weight basis last week.  For the week, Nebraska dressed sales were mostly steady at $128.  Choice boxed beef was down more than $3 last week and the Choice-Select spread narrowed $0.42.  700-800 lb. feeder steer prices were about $2 lower in Kansas last week and were slightly lower in Nebraska.  Steer calf prices were $2 lower in Kansas but were $9 lower in Nebraska.

Last Week
Previous Week
Last Year
Kansas Fed Steer Price, live weight (35-65% Choice)
Neb. Fed Steer Price, dressed weight (35-65% Choice)
700-800 lb. Feeder Steer Price, Kansas 4 market average
500-600 lb. Feeder Steer Price, Kansas 4 market average
700-800 lb. Feeder Steer Price, Neb. 7 market average
500-600 lb. Feeder Steer Price, Neb. 7 market average
Choice Boxed Beef Price, 600-750 lb. carcass
Choice-Select Spread, 600-750 lb. carcass

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posted by Dr. Harlan Hughes 11:01 AM [edit]

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