Cattle futures have traded into a narrow consolidation pattern on futures charts. Prices continue to meander up and down in a mostly methodical fashion as the balance between supply and demand continues to be perceived mostly as equal and balanced.
In the big picture, when looking at continuous monthly futures charts, tremendous support continues at the 100.00 mark, with overhead resistance at 113.00. Prices look to continue to remain in between those two price parameters in third quarter, with price potential into fourth quarter coming into question.
The known fundamental that supplies were on the rise for second quarter of 2018 has been fully priced in, and while normally an increase in supplies would send the market screaming lower, domestic and export demand has been able to increase enough to consume the additional supplies. But now that may be changing and here are things you need to be aware of.
Exports
Recent cattle exports have been fantastic. According to the U.S. Department of Agriculture, United States beef exports so far in 2018 are up 13 percent from last year. We have exported nearly 984 million pounds of beef to 108 different countries in 2018. Top destinations include Japan, South Korea and Mexico, Hong Kong and Canada.
Domestic demand
Domestic demand for beef continues to be strong as burgers and steaks continue to sizzle on summer grills. However, something is lurking in the background that may or may not affect consumer’s appetite for beef. The Pork Complex is seeing a potential reduction in exports, due to trade fears with China, Mexico and Canada, meaning more supplies of U.S. pork may soon swell in cold storage.
If that is the case, there is a potential for cheap pork products to flood the grocery store later this summer. Will the consumer opt for cheaper pork or continue to satisfy the craving for beef? With the economy strong, and crude oil prices slipping below $70 a barrel as of this writing, one would be tempted to smugly say, the consumer will stick to beef. However, soon back to school shopping (school supplies, school fees, fall sports fees, fall sports shoe needs and any back to school clothes because your kids grew over the summer) will be in the forefront, and any extra slush money in the family fund, may need to go to back to school needs, versus succulent beef.
Supplies
Beef supplies continue to be large for the moment. The recent Cattle on Feed Report showed that the most recent “on feed” number at 104.3 percent from last year. Placements were at 101.3 percent of last year, versus pre-report expectations of 100.6 percent. This is the highest June placements since 2006. There is the reality of continue larger supplies in the short term and monitoring that into the fall and winter is important.
For now, the supply and demand fundamentals continue to balance each other well, which is why prices continue to be choppy and trade in this sideways pattern, yet, be aware of what might be lurking ahead. Will demand continue to remain strong with the threat of trade wars? Will domestic consumer demand continue to be strong as well? Will the wall of cattle continue? Fourth quarter of 2018 will likely lead us to the answer.
Editor’s note: Naomi Blohm is a marketing advisor with the Stewart-Peterson Inc. and she is a regular contributor to the Iowa Public Television series “Market to Market.” She can be reached at [email protected].
