USDA raises projections

By: Luke Schweiterman

The USDA cattle on feed report indicated 102 percent on feed (102.5 trade estimate), 98 percent placed (98.8 trade estimate) and 102 percent marketed (100.3 percent trade estimate). The report should be friendly to the cattle market since the major worry seems to be if we can move the beef at these price levels. The marketing number coming in above the average trade guess shows we are still selling the beef. We look for the uptrend to continue for a while.

In fact, choice box beef reported today is $197.42 compared to the previous all-time high of $197.07 on 11/23/11. Select beef was $193.40 today which is the record high price for this class. Choice box beef was $170.36 last year at this time. If the seasonal trend continues, as it has the last couple of years, we could be looking at $222 choice price by the first week of April. That gives us the possibility of $140+ live cattle price in April. Granted, that price seems lofty but there doesn’t yet appear to be any resistance to price at the meat case.

The USDA in the last Supply and Demand report raised their price projection for the 1st quarter to 121-125. 2nd quarter is projected at 120-128, 3rd quarter 121-131 and 4th quarter 123-133. It appears that these projections maybe too low given the current fundamentals. We advise producers to use put options on cattle being hedged for the next six months. The possibility of the cash market increasing in value from current levels for the rest of the year is the reason behind using put options as opposed to outright short futures. Long put options allow producers to benefit from increasing cash.

The USDA Outlook Conference projected 94 million acres of corn to be planted in the 2013/14 crop year with ending stocks of 1.6 billion bushels. The first USDA supply and demand for 2013/14 will be in May. We would advise corn producers to be careful about getting too bearish at this point. The corn seed is still in the bag and acreage guesses and what really happens has always been at odds with each other. A large part of the US continues to be in a drought. We would suggest that cattle producers consider buying feed needs on sharp breaks. Old crop corn is still in short supply and held in strong hands. July call options could be the best way to take on future feed requirements.   

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 our web site at www.upthelimit.com.

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