Editor's note: DTN Livestock Analyst ShayLe Stewart is out of the office for a few weeks. We will continue to update her Sort and Cull blog with livestock market content. Please send any questions or comments to Editor-in-Chief Greg Horstmeier at firstname.lastname@example.org.
February live cattle finished up 80 cents at $171.37 in the week ending Jan. 12, a week that saw winter snowstorms across, Nebraska, Kansas and the Midwest, followed by bitter cold conditions, stressing livestock and livestock producers trying to keep cattle fed and watered. The winter storms made transportation difficult and slaughter suffered, estimated by USDA at 549,000 on the week, similar to the previous week, which included the New Year holiday.
In the strained winter conditions, DTN reported cash trade at mostly $172 in the South, $1 lower on the week, while northern trade had a wider range of mostly $273 to $275, steady to $2 lower. U.S. futures markets was closed Monday for Martin Luther King Jr. Day and USDA's weighted averages for the previous week will be released Tuesday.
With sub-zero temperatures expected throughout the central Plains early in the third week of January as far south as Kansas and sub-freezing temperatures in southern Texas, slaughter and cash trade are apt to be lighter than normal again in the week ending Jan. 19. The one bullish result of winter weather and reduced slaughter in the second week of January was an increase in boxed beef prices. Choice cuts were up $12.10 during the week, ending at $289.26 on Jan. 12, while selects were up $12.32 at $271.85.
An examination of price behavior in February live cattle shows the rebound in prices since Dec. 7 has been slow and deliberate, not displaying the same sense of urgency or panic that took prices down after the Oct. 20 on-feed report showed higher-than-expected placements in September. Now over a month after the low was made, it is also clear that prices haven't traded near the low since, a bullish clue that prices are not sustainable at the lower level.
Friday's CFTC data showed noncommercial net longs fell from 30,653 to 23,367, as of Jan. 9, as specs appear to be losing patience with hopes for a recovery. Technically speaking, the trend remains down and prices are encountering resistance near the December high of $172.42.
Fundamentally speaking, it is likely support at $162.40 will prove stronger than resistance at $172.42 as USDA's Jan. 31 cattle inventory should show another reduction in both, the numbers of cattle and calves in the U.S. as of Jan. 1. With no sign of U.S. herd expansion evident, February live cattle may trade sideways for a while, but higher bids are the more likely outcome.
Last week's lower cash trade was the first decline after three higher weeks. Given the severe winter conditions, stress on cattle and low U.S. numbers, packer sourcing of cattle should prove more difficult in the weeks ahead.
Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of commodities, futures or options involve substantial risk and are not suitable for everyone.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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