AgResource Daily Cattle Analysis: Cattle futures closed slightly lower on Wednesday and are called steady to a bit weaker this AM. Fund liquidation continues as the Central US temp pattern has changed, and as next week’s on-feed report should reveal yet another expansion in herds. As mentioned Wednesday, nearby weights are expected to rise following the end of cripplingly cold temps, and the spec community’s position is still rather long given current fundamentals.
The monthly price chart suggests the longer term downtrend has been sustained so far in 2018, and on a weekly basis rallies look to be capped at $122-123, basis April. Extreme cold in the next two weeks will be isolated to the Dakotas, MN and WI, while major snow events will be absent in the next 10 days. Funds as this morning are estimated to be long a net 74,000 contacts, and liquidation of another 10,000 or so is likely without a bullish catalyst. Continue to use modest rallies to hedge forward sales.
South American Weather Pattern Discussion: The South American forecast is little changed from previous runs, and is viewed as mixed fundamentally. The two areas of concern are pockets of La Pampa & Buenos Aires in Argentina (both major corn/soy producing provinces), and N/NE Brazil, where climate guidance appears to be coming to fruition. At left is the EU model’s 10-day cumulative rainfall outlook. N Argentina will benefit from needed heavy rainfall, but little/no moisture is forecast elsewhere. Brazilian precip will be pushed incrementally westward in the days ahead.
A new sort of pattern lies ahead as a strong high pressure Ridge is established aloft E Brazil beginning early next week. This will block precip from E Mato Grosso, Goias, Minas Gerais and Bahia (roughly 35% of Brazilian soy production), while temps inch a bit higher. This Ridge will be anchored there through at least Jan 21st, and key in the days ahead is whether the Ridge loses strength thereafter?