** AgResource Daily Cattle Analysis: Cattle futures marked another day of solid and a steady outlook is offered for early trade this morning. February cattle very precisely closed out the last chart gap that was left 2 weeks ago, but could not get above the 50 day moving average. Cash markets stayed quiet through Thursday with cattle bid at $118 and offered at $124. Steady to $2 higher is expected later today.
The steer by-product value soared to all time highs back in 2014 as low fed cattle numbers reduced by-product supply. There were many weeks in which estimated packer margins showed losses on the beef, with the only profits coming from by-products. The combined hide/offal value fell to an 8 year low of $10/cwt back in October and has since improved. But compared to the lean years of 2011-2015, the by-product value is thought to be adding to already strong slaughter margins. Margins last week were estimated at $121/head, with the by-product adding another $115 of revenue for a combined gross margin of $236/head.
February cattle closed out the last gap, while the 50 day moving average sits just above Thursday’s market. It’s the 2nd quarter, where we see cattle futures as over valued. June cattle back to $115-118 should be sold if you are a producer.
** South American Weather Pattern Discussion: The EU and GFS weather models are in fair agreement on the 7-9 day forecast, but differ on the Northern Brazilian forecast for rain late next week. Below normal rainfall and seasonal temps are expected across Argentina for the next 10 days with rainfall accumulations to be limited to .1-.85” in the main crop areas. This rain will not be enough to counter evaporation losses and soil moisture will continue to decline. Better rains are slated to fall across far Northern Argentina and throughout much of Southern Brazil. This area could see 2-6.00” in the next 10 days. Some crop areas like Parana in Brazil desire more sunshine and dryness due to saturated soils. 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 EU model’s 10-day cumulative rainfall outlook is attached. Notice the circled areas were below normal rainfall trends will be evident. ARC has been commenting that this is far from favorable weather pattern for Argentina where a deepening drying trend could persist into February. However, no extreme heat is forecast.
** EU 10 Day Rainfall Forecast: