A Look At Prices

By: Luke Schwieterman, President, Schwieterman Inc.

Summer time nearly always seems hard on cattle prices. It seems the selloff makes it difficult to believe that price will likely trend higher into the winter months. So far this year, the top practical cash price in Kansas (from our weekly survey of Kansas Feedlots) was the first week in January at $170.50. For the week ending July 17, 2015 the “practical” cash price was $148.00. That $22.50 drop in price comes during a time when slaughter numbers are less than 2014 as well as 2013. Even larger slaughter weights have not compensated for the lower slaughter levels as beef production is lower than both 2014 and 2013. On the surface, you would think that cattle prices would be higher than the previous year but, compared to 2014, price is $8.00 per hundred weight lower yet, $29.00 higher than 2013. Trade analysts argue that high box beef prices and higher retail prices are limiting demand and lower retail price in the competing meats (pork and poultry) is causing a shift in meat case demand. Perhaps.

Let’s take a look at what cash price has done from the week ending July 17 and see what price has done going into winter. In 2011, the cash price was $111 and rallied to $123 during the week of 12/21 (+$12.00). In 2012, from $115 to $128 (+18.00). 2013, from $119 to $137 ($18.00) and 2014 from $156 to $173 (+$17.00). Pretty impressive trend for the last four years. Given the current fundamentals it is logical to think that perhaps the tendency for price to improve into December is fairly good. USDA forecast for 4th quarter average price is projected to be somewhere between $155 to $167. If the average cattle price comes in at the middle of the projection, that would be $161. Keep in mind that the USDA estimate is an average so the winter top cash would be higher. It looks as though the odds of higher prices are in the making.

On the grain side, there are lots of questions about corn and soybean acreage as well as yield potential. It’s going to take another couple of months to get a good handle on both. However, with the information we have, there does not appear that there will be a full fledged bull market. Rather, the market will trade in a range from 380 to 450 for the current time. We would advise buying call options on input needs on pull backs to cover feed costs. There is still a chance for corn prices to surprise us on the upside. This material has been prepared by a sales or trading employee or agent of Schwieterman, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Schwieterman, Inc. Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. The information contained herein is based on data obtained from recognized statistical services and other 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. All statements contained herein are current opinions which are subject to change. You may visit our web site at www.upthelimit.com