** AgResource Daily Cattle Analysis: Cattle futures closed higher on Tuesday, and a firm outlook is offered for early trade this morning. August cattle took out Monday’s low in early trading on Tuesday, and that break found good demand that carried prices higher into late in the day. October led the rally as funds rolled position out of August and into October, and the August/October spread briefly traded at even money.
Cash cattle markets in the Plains feeding regions have been very quiet so far this week. No bids or offers were quoted through Tuesday, but gains at the CME will have sellers leaning more optimistic. An initial test of the market will get underway with the Fed Cattle Exchange sale later this morning, which is showing consignments of 2,655 head for this week.
The beef market continues to deflate and was weaker Tuesday morning, and even lower in the afternoon report. The choice cutout value was off $2.30 at $215.24 and the select value was down $2.16 at $200.51.
Fundamentally, we think that the downside in August cattle should be limited, based on current 3rd quarter supply projections, while rallies will struggle against $119-121. Longer term, tightening supplies of fed cattle should produce a rally into year end.
** US Weather Pattern Discussion: The US & EU models are in better agreement on the forecast this AM. There are still some differences on rainfall locations and amounts in the next 3 days, but all of the models have the long wave pattern as similar which raises our confidence in the forecast solution.
This remains a threatening pattern for Central US crops with considerable heat/dryness into late July as the Ridge in the Intermountain West progresses eastward and stalls across the South Central US. The Ridge in this location will block the flow of Gulf moisture to the north and raise temperatures to the 90’s to lower 100’s next week. Limited rainfall is expected across the Midwest over the next 10 days with the best totals falling across the Lake States. Much of that rain should be in retreat following today.
The EU model 10 day rainfall map reflects a lack of moisture for the entire Plains along with limited totals for IA, IL, MO and the Delta. The drought in the N Plains is spreading south and east. The pending heat will only advance the loss of soil moisture. US crop conditions will decline with longer range forecast keeping the Plains and W Midwest drier than normal in early August.
** 10 Day EU Model Rainfall Estimate:
