February Market Analysis

‍Drew Haynen, Van Zee Commodities LLC

Cattle:

The USDA inventory report that came out last week has the market bullish. Heifers kept for beef cows at 97% of last year looks like a very bullish number and shows a lower retention rate. In addition, the calves came in at under 97% of last year’s numbers showing a potential decline in availability for feed yards. The all cattle and calves numbers were smaller than expected along with total cows, beef cows, and total heifers. It feels like the future for the beef industry should be strong. The other bullish fundamental that is finally showing up is that kill numbers have come back to normal. This has boxed beef moving a little lower but cash trade the last week was back to $140/cwt and looking to be higher by the end of this week. It feels like the board is getting ready for a nice move higher in the fat cattle barring any black swan events. A link to the cattle inventory report is below.

The feeder cattle market should also move higher according to the cattle inventory report. I think that they could test $190/cwt or higher in August. There should be fewer feeder cattle around in the coming months, and with the board pushing new highs, buyers should stay bullish. The corn market does have me concerned with corn also making new highs the last week.

Click here to read the USDA's biannual cattle reports.

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Grains:

The grain market has been moving higher for the past week or two with no sign right now of a top. The South American crop is still struggling with drought conditions. There is still time to get rain there as they are in the beginning to middle of their growing season. I would compare it to mid-June for the USA crop. If they can get rain, they could still have a very good crop. Different varieties of seed are really helping in drought conditions. The USA also has some potential problems with current drought conditions. Iowa, MN, South Dakota, and North Dakota are all areas that need precipitation to get a good crop this year. I think some of that premium is starting to show up in the market. We still have plenty of bushels of corn and beans in the USA and there have been some export cancelations for corn in the last week which shows that we are definitely starting to ration demand. Ethanol demand is very strong with oil over $90/barrel and plenty of margin in ethanol. There is a USDA report that comes out February 9th that will give a new look at the supply/demand table and give us a better idea how much corn will be left at the end of the year.

If you have any more questions or concerns or just want to discuss the specifics or potential risks and reward for different strategies, please call Drew Heynen at 712-722-3888.

The risk of loss in trading futures and options on futures can be substantial and may not be suitable for everyone.  This material has been prepared by a trading employee of Van Zee Commodities LLC and is, or is in the nature of, a solicitation. All sources used are believed to be reliable; however, any decisions made to buy, sell or hold a futures or options of futures position should not be solely based on this research and should not in any way be deemed to be endorsed by Van Zee Commodities LLC.  Van Zee Commodities LLC is registered with the Commodity Futures Trading Commission as an introducing broker and is a member of National Futures Association.

Sheep and hay data compiled by Ross Bronson, Ag Risk Consultant, Redd Summit Advisors

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Sheep:

Slaughter lamb markets were steady to $15/cwt lower compared to last week. Slaughter ewes were steady to $10/cwt lower. There was no comparison on feeder lambs. The USDA estimated domestic lamb and mutton meat production for the week ending January 15 totaled 1.98 million pounds on a slaughter count of 30,000 head down 130,000 pounds and 3,000 head when compared to the previous week’s totals of 2.11 million pounds and 33,000 respectively. Imported lamb and mutton meat for the week ending January 22 totaled approximately 6.47 million pounds which equates to 307 percent of the domestic production for the same period.

Sheep markets for week ending February 4th, 2022

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Hay:

Trading remained moderate the last few weeks, but there does seem to be some increased trading as inventory that was previously being held becomes available. However, the market still tends to have low amounts available. Inventory currently available is higher quality hay. This has Dairies and exporters both looking at the same stock. Horse hay demand remains strong. Those moving hay long distances are struggling to find timely transportation. Brokers are suggesting that they must take transportation when it is available. Accordingly, freight costs are up. The outlook for demand is still strong into the summer as weather continues to be drier than desired for quality harvests this summer. In addition, continued drought conditions across the west will be detrimental to rangeland forage production increasing demand for harvested forage.

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