 |
||||
|
||||
|
||||
|
Market Notes by Luke Schwieterman, President of Schwieterman, Inc. The July seven state cattle on feed report indicated cattle on feed up six percent, placements up 20 percent and marketing down one percent. Cattle on feed reports always create more questions than answers. If we look at the "on feed" number for any report, it has been a record compared to the month the previous year since the March 1999 report. The first question becomes where are the cattle coming from? For the last couple of years, we've sighted drought plagued pasture conditions for placing lighter weight cattle in the feedyards, but for two and a half years? Imports are beginning to drive up feedlot inventories. The calf crop is almost one percent less than a year ago during the January/June period. It appears that despite efforts for U.S. producers to keep inventories reduced to support prices; they are being undercut by imports to the U.S. from Canada and Mexico. Cattle imports are up over 27 percent during the same time frame. Not only are live cattle imports up, but beef imports from Australia are up 37 percent as of April. In records going back to 1970, the U.S. has always needed to import beef to meet domestic needs. During the mid-nineties, it appeared that the beef industry had just about reached a point of equilibrium. However, since the late 1990's, the U.S. has found it necessary to import an increasing amount of beef to meet demand. Beef imports are projected to be 3055 million pounds in 2001 versus exports of 2459 million pounds. Therefore, an additional 500 million pounds of imports are necessary to meet domestic demand in 2001. The point is U.S. producers may not be able to significantly improve price levels by reducing the cow/calf inventory because the shortfall is being met with increased imports. It is amazing that beef producers have shown restraint for the last several years to maintain generally level cow/calf inventories, but we wonder if that will have the desired affect when cattle and beef imports increase drastically during times of tight supplies. We've been bullish on cattle (although tempered somewhat) and despite this latest report remain bullish into the fall. We think prices could, more or less, trade between $75 and $80 during the fourth quarter simply because demand is record large and retail price at record high levels. It could be argued that record high retail prices will temper beef demand but in our thinking if demand becomes soft, retail prices will drop to encourage demand. Our recommendations remain unchanged from previous articles. We suggest that you consider buying put options on all cattle being fed. This price insurance allows you the comfort of knowing that if price drops drastically that you will have some price protection in place. We also suggest that future feed requirements be covered for the next six months by using December corn call options. The trade currently seems unconcerned about the corn crop but we think the USDA and traders alike are overly optimistic on corn production. The variations in weather over the entire US leads us to believe that we will not have a bin busting crop this year or be able to achieve the second highest yielding crop as projected by the USDA. Therefore we think corn is under priced and livestock producers are being given an opportunity to buy cheap corn ahead of the lower crop prospects ahead. 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. You may visit their web site at www.upthelimit.com . |
||||
|
|
||||
|
||||
|
All information is copywrited by Feed Lot magazine and cannot be printed or re-printed without the publishers express consent. Please contact Feed Lot Magazine for reprint and copy authorization. | ||||