** AgResource Daily Cattle Analysis: Cattle futures fell sharply on Friday on technical/fund liquidation and lower than expected cash trade. February gapped lower at the open and was limit down at the close, while other contracts finished above limit losses.
Cash trade held until Friday when feedlots sold cattle into packer bids at $122, versus earlier week expectations of $123-125, $1 lower for the week. While cattle traded down, the beef market put in a week of strong gains with choice up $6.61 and select ending $9.34/cwt higher, and estimated slaughter margins improved significantly for the week to $90/head. The chart shows estimated slaughter margins near unchanged from a year ago, and the 3rd highest of the last several decades. With steady beef prices, we estimate a break even price of $131.
The 200 day moving average in February cattle sits just below $118, with the next target at $116 as the market searches for a low. Going forward, chart gaps left from Friday’s open will serve as sales targets on any recovery later this month. The long term trend remains bearish.
** South American Weather Pattern Discussion: The US and EU weather models are in fair agreement on the 10 day forecast. A trend of below normal rainfall is forecast for Argentina and S Brazil into January 18th. Temps will be well above normal across Argentina and S Brazil with highs ranging from the 90s to lower 100s this week and easing back to the mid 80’s to mid 90’s on the weekend.
Better rain chances start to emerge late in the weekend and through the first half of next week as two fronts push through the area. The graphic is from the 6z GFS model and it reflects its rainfall forecast over the next 10 days. ARC would note that a drier weather trend is starting to emerge over NE Brazil that will likely spread westward with time.
The duration of the dry trend will be important with the soy and 1st corn crops just starting their reproductive phase and soil moisture in decline. No heat will be noted in Brazil at this point, but warming will be noted in the last half of January across the north. The difficult aspect of the forecast is trying to determine if both NE Brazil and Argentina/S Brazil can hold in dry weather trend? Our thinking is that keeping both areas parched will be difficult over time.
