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The market saw an impressive upside break-out on Thursday and futures look set for a much more positive year this year. Feedlot supply is tightening after the sharp reduction in placements from November and ideas that the market saw low placements again in December. The winter storms since mid-December have caused significant weight loss and this is likely to tighten the beef supply a little more than expected. December cattle expired on Thursday at 86.00. Cash cattle pushed sharply higher last week to entice the new buying. While the short-term cash situation is supportive from a supply and recent demand situation, traders will need to monitor the demand situation closely as the poultry industry adjusts to the Russia poultry ban. As of January 1st, Russia will follow a new law which prohibits the use of chlorine as an anti-microbial treatment for poultry production. This effectively bans US poultry from entering the country and Russia is the largest importer of US poultry. In 2008, the Russian market was worth near $800 million in sales. Traders believe there is near 30,000 tonnes of US poultry en route or already at Russian ports. If exports slow dramatically, the US consumer will need to absorb the excess and this could hurt demand for US beef. February cattle pushed sharply higher on the session on Thursday and managed a run to the highest level since November 10th. News of higher cash cattle trade last week and ideas that fund traders will be buyers this week helped to support the strong trade. Cash cattle in Texas traded at $85.00-$85.50, up $2.00 on the week in a week in which traders expected steady to $1.00 higher. Weekly US beef export sales for the week ending December 24th came in at 5,900 metric tonnes as compared with 3,500 last week and 5,480 tonnes as the prior 4-week average. This pushed cumulative sales for the year to 500,000 metric tonnes as compared with 520,900 last year and 786,400 metric tonnes for 2003. February 2010 cattle closed 2008 at 91.60 and closed 2009 at 86.17 while nearby futures last year were about the same as this year. The estimated cattle slaughter came in at 98,000 head on Thursday. This brings the total for the week so far to 469,000 head, up from 429,000 last week at this time and up from 349,000 a year ago. Boxed beef cutout values were down 27 cents at mid-session Thursday and closed 29 cents lower at $138.75. This was up from $138.63 a week ago. Average dressed steer weights for the week ending December 19th came in at 843 pounds, down from 850 the previous week and down 0.94% from a year ago. The sharp drop in weights will result in lower than expected beef production for late December and the weather has not improved much since December 19th for most cattle feeding areas so the trend of lower weights could continue. The sharp drop of 7 pounds in just one week also shows the intensity of the weather. Beef production for the same week came in at 486.8 million pounds, down 4.5% over year ago.
TODAY’S GUIDANCE: Except for the Russian poultry situation, the near-term fundamentals look positive. February could begin to find additional pressures from index fund rolling of longs to April or deferred contracts. Support for February cattle comes in at 85.55 with 87.70 as next key resistance.
TODAY’S MARKET IDEAS: While there could be more follow-through buying, the Russia poultry situation could be a major limiting force.
