** AgResource Daily Cattle Analysis: Cattle futures closed lower last week, but were able to build support in the last half, and a steady outlook is offered for early trade this morning. The week’s cash trade was generally $2 lower at $120; though light, late week business was at $117-119.50. Beef cutout values were down $1.28 on choice and $.68 on select; though, estimated slaughter margins at $121/head are the best on record for mid-January.
The January WASDE report featured modest changes to beef production forecasts, but added to the bearish supply outlook. The 1st quarter production forecast increased by 1%, and the 2nd quarter was raised by 2%. Forecast for the last half of the year were lowered slightly. However, US beef production is expected to be record large for Apr-Jun, due to strong late 2017 placements, and record quarterly production is also forecast for Oct-Dec.
In the near term, we see cattle futures for the 1st quarter as fairly price, though strong rallies should be sold. Technical targets for February are at chart gaps left through last week’s trading, just above $119 and then $122. It’s the 2nd quarter, where we see cattle futures as over valued. June cattle back to $115-118 should be sold.
** South American Weather Pattern Discussion: Holiday weekend rainfall was disappointing and a return of dryness and warming temps is now expected across Argentina for another 10-12 days. And dryness is starting to become an issue for NE Brazil and areas farther west as 4 weeks of below normal rainfall has dropped soil moisture to short levels. The 2017/18 South American growing season to date has not been as favorable as recent years.
The US and EU weather models are only in fair agreement. The GFS remains too wet, which has been the case since mid December. Our forecast model of choice remains the EU model based on its favorable track record. The EU model’s 10-day cumulative rainfall outlook is attached.
N Argentina will benefit from needed rains, but amounts farther south will be much reduced and limited to traces to 1.00” in the next 10 days. N Brazilian precip will be limited in the next 2 weeks amid a high pressure Ridge aloft.
Whether the Ridge can hold this position will be closely watched in early February as soil moisture is in rapid decline. In between, heavy rain looks to drop across far N Argentina and S Brazil.