While slaughter levels are tightening, record high weights are allowing for beef production to come in much higher than expected. Part of the potential bullishness for cattle comes from the perception that near record high feed prices would spark sharp declines in slaughter weights into late 2012 and 2013 but this has not occurred. Traders expected cash markets to trade lower this week but cash traded $1.00 higher on the week.
December cattle closed lower yesterday after a choppy trading session. News that cash cattle traded at $124.00, up $1.00 from last week failed to provide much support as traders fear that weak margins will limit the upside unless beef prices can rally sharply over the near-term. Traders are also concerned over the possibility of deliveries against the October contract into next week. Better weekly export sales, higher beef trade and a sharp drop in the US dollar plus some strength in hogs and the higher cash market helped to support the mid-session bounce.
Weekly U.S. beef export sales for the week ending September 27th came in at 15,800 metric tonnes, compared with the prior 4-week average of 13,925. Cumulative sales for 2012 have reached 718,400 metric tonnes, up 2.2% from last year's pace. Slaughter came in under trade expectations at 120,000 head, which could suggest weak packer demand. This brings the total for the week so far to 492,000 head, down from 505,000 last week at this time and down from 526,000 a year ago.
Boxed beef cutout values were up 76 cents at mid-session yesterday and closed 65 cents higher at $191.35. This was down from $192.04 the prior week and is the highest beef trade since September 27th. Average dressed steer weights for the week ending September 22nd came in at a record high 874 pounds, up from 869 the previous week and up from 853 pounds last year. The 5-year average weekly weight for that week is 857.8.
Beef production for the same week came in at 499.1 million pounds, which was down 1.7% over year ago. Slaughter the same week was down 5% from last year but record weights are adding to the production.
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.
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