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Thousands of head were lost in the oppressive heat at the end of July. One report indicated 3000 head lost in only one day in Nebraska. Feedlots appear to be current with marketings. We've discussed the need for a significant event to excite prices higher. That could be occurring as this article is being written. The crop condition of corn and soybeans is beginning to deteriorate. Not only did the heat/drought affect cattle, the status of a record crop this year doesn't look possible. Many traders and analysts think soybean production will be in the 2.8 billion range and corn is somewhere between 9.2 and 9.4 billion bushels. Last month, USDA projected soybeans at 2.935 and corn at 9.650 billion bushels. Although these estimates don't appear alarming at the present time, the drought and heat are relentless. 
Last month we cautioned readers about feeder prices going up. The price relationship between corn and feeder cattle says that as corn price goes up, feeder price should go down and vice versa. Since the beginning of corn price going up, it looks like feeder cattle futures is waiting for clues from the corn pit for direction. We continue to think that there is an upward bias for feeder cattle because of our optimism with live cattle prices and the fact that corn is terribly cheap. "How high will corn have to go to affect the price of fat cattle?" becomes the question. It seems to us that the market place regards today's corn prices as though they were 50 cents higher than they are. Current corn prices leaves room in our opinion for profit potential for the cattle feeder, provided that producers cover feed costs with call options. The last cattle on feed report indicated that marketings in June were the third highest since the change in survey methods in 1992. Cold storage is not increasing, so it is evident that domestic demand continues to be far better than anticipated during a period that generally sees reduced consumption. Beef exports for May are down six percent from last year while year to date exports are up nearly eight percent. Notable is year to date live cattle imports from Mexico and Canada are down eight percent. We think beef exports will continue to be a bright spot in the cattle fundamentals and reduced imports of live cattle, should that trend continue, it comes at a time when beef production should be slowing and support further cash price improvement. Schwieterman, Inc. is a Registered Commodity Trading Advisor in Garden City, Kansas. The information herein is based on data obtained from recognized statistical sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to the accuracy or completeness. Past results are not necessarily indicative of future results. The risk of loss in trading commodity futures contracts can be substantial. You should therefore consider whether such trading is suitable for you in light of your financial condition. |
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