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Ranchers.net

Longer-Term US Cattle Market Holds Bullish Tones

KANSAS CITY (Dow Jones)--While cattle market analysts feel in the short term that prices will struggle, a growing number are decidedly more bullish longer term. While analysts are more optimistic in the long term, they're not ready to put out price projections. In the short term, analysts said cattle will struggle because of perceptions that large supplies of nearly slaughter-ready cattle are lounging in the feedlots waiting for the time when they will come to market.

In addition, these cattle are heavier than in past years, increasing beef production at a time when there are large quantities of competing meats, said private market analyst and trader Don Close of Canyon, Texas. "The most bullish thing you can say (about the nearby market) is there's nothing bullish," Close said.

In his weekly newsletter, David Hales, market analyst with Hales Cattle Letter, said the U.S. Department of Agriculture reported slaughter steer carcass weights during the week ended April 21 were at 800 pounds, 15 pounds above a year earlier and 29 pounds above the 10-year average. What's more, steer carcass weights appear to have bottomed seasonally the week before at 798 pounds. Weights normally increase at a fairly rapid rate during the summer and peak during the fall, Hales said.

A trend similar to that of 2002 may be developing when record heavy carcass weights occurred. That year, weights bottomed during the first week of May at 796 pounds and peaked at 844 pounds the third week in October. The fear is that since cattle feeders are experiencing massive losses, they may feed cattle to the maximum genetic potential, significantly increasing carcass weights, Hales said.

Other bearish fundamentals exist for the next few months, he said. Slaughter cattle imports from Canada have declined, but domestic supplies are increasing at a rate that more than offsets the decline. Also, fed cattle supplies are above last year and based on USDA figures, will stay above last year through the summer. Hales said cow slaughter is slightly above last year and is projected to stay above there but well below 2002 and 2003.

Furthermore, resulting beef production could be significantly larger than in 2005 or 2004 although below the massive levels of 2003 and 2002. If the Plains-states drought worsens and spreads, causing large-scale cow liquidation, the increase in cow slaughter could push beef production up to the 2002 levels. Hales noted, though, the futures market already has taken these factors into account.

He expects declining cash prices to drive summer futures to new lows, although fund buying may limit losses. But Close said the "absolutely brutal thrashing the producers are going through" currently is altering the typical mindset of feeding to heavier weights. Instead, Close said the mindset is now to "just get rid of them." The resulting pattern is to put cattle up for sale as soon as they get close to being ready for slaughter rather than to allow them to pile up in the feedlots.

Packers are willing to help feeders slaughter their way out of a large feedlot inventory because of hefty plant margins, and weekly slaughter rates are large, market analysts said. This is helping to keep cattle feeders current in their marketings.

Douglas Berger, retired cattle broker and feeder in Dallas, said the fact that cattle feeders are up to date in their marketings shows they anticipated the bearish effects of large feedlot inventories. They aren't willing to get caught holding them past their slaughter date.

Besides, just because cattle are in the feedlots because of a lack of pasture doesn't mean they will all come due for slaughter in a bunch, Berger said. They will grow a little faster in the feedlot but not by a great deal, he said. Genetically, cattle have a limit to their growth rate. Berger and others said they feel fed cattle prices could go a little lower in the near term, but that doesn't need to happen.

Several have indicated they feel cash markets are oversold. Berger said because fewer cattle feeders are hedged than in other years, so there isn't the futures support from hedge lifting at perceived market bottoms. Previous hedgers have opted out because "once the board goes to a certain discount to cash, there's no need to have them (hedged) any more because you've got a double risk," he said.

Berger and Close said they were concerned about feeder cattle supplies in coming weeks and months. Drought conditions in cattle country forced them into the feedlots earlier than normal during the fall and winter. And recent rains have perked up pastures, reducing the need to sell them to the feedlots.

National feeder cattle receipts reported by the USDA last week were only 68% of a year ago, and Oklahoma City runs Monday were only 47% of a year ago, Close said. If this keeps up, it will affect price and availability of feeder cattle in the last half of the year.

-By Lester Aldrich; Dow Jones Newswires; 913-322-5179;
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