Fear Takes Command

Posted On:  02/24/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures, faced with a monthly USDA Cattle-on-Feed report today are responding by selling off sharply. Ignoring the huge and positive marketing number likely to show the industry sold 10% more cattle than a year ago in favor of fear of a big placement number for January. In 2016, January placements were historically light, the fifth smallest going back to 1996. Estimates for 2017 average a 10% increase, but a higher number is feared, a potential repeat of last month.

This week’s $4-5 higher cash fed cattle market, another big drop in carcass weights and impressive gains in the cutout are being ignored as the focus is almost solely on the anticipated supply increase beginning in April but kicking into full gear by June forward.

Technically, futures were due for a correction of overbought short-term indicators. Some traders believe today’s downturn is the beginning of a more sizeable break, though with futures discount to cash already historically large, that might not be highly probable.

No doubt many short hedgers have added to protection by selling the market this week and even today. Eyeing the calendar, many feel the high could come at any time- now or 4 weeks from now.

There were cattle that traded this week that won’t deliver until mid-March and some market watchers are concerned packers will use their extended inventory to limit the cash market going forward. Whether that turns out to be true will be governed by a myriad of factors, some known some unknown.

For one, the cutout is expected to continue to rally next week. This week’s up has been fueled by the rib and loin primals, up $11 and $17 respectively. The level of retail beef features and slaughter in March will be what truly drives cash fed cattle prices. The more robust, the more willing packers will be to own live inventory during this seasonally tight supply period which will not wane soon.

Today’s correction isn’t really a surprise when you consider the cattle industry’s mindset reflected by the market structure. Today’s break is consistent with the market’s behavior all of 2017. So far, this $114 to $124 spot trading range (Apr LC steps into the lead spot in 2 days) is this market’s reality and with the near-term fundamentals in the best shape in years, the lower end of the range is on solid footing for now.

Copyright © 2017 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.

Higher With a Big Dose of Caution

Posted on:  02/23/2017

By Cassie Fish, http://cassandrafish.com

It’s a funny thing about a realizing bull market rally. It is fueled by selling. Top picking. Short Hedging. There’s every reason in the world to sell cattle futures. The cattle industry is in the throes of expansion and more cattle are coming. The cattle industry is coming off two consecutive years of record losses. So even though there are record or near record discounts in live cattle futures, selling is the name of the game.

Cattle feeders aren’t just selling futures but are selling cattle aggressively. Loving the basis, cattle feeders are doing something that hasn’t been done in so long no one can recall- selling one showlist then putting together another one- then selling that showlist. Cattle feeders are selling cattle to deliver in 3 weeks, some at the highest cash prices since May 2016. There were cattle listed on the FCE yesterday with a mere 120 days on feed. All indicators point to a cattle feeding industry that is finally regaining its most powerful currency- currentness.

This selling mentality isn’t going to slow down, with the larger supplies of summer looming on the horizon. In fact, it will go as fast as the packer will allow. It is worth repeating that the seasonal is strong for a rally into April for fed cattle prices and into May, sometimes even June, for boxed beef prices. Weights and grading drop and the best beef demand period of the year- May and June- entice.

Now that beef is in favor again with retailers, end users and consumers, the 2017 post-Easter beef demand period could rock the wholesale beef market even higher than thought, providing an undercurrent of stability and profitability throughout the entire supply chain.

It’s a long time until then undoubtedly, and fear that the top could come any moment is commonplace. But the clues as to this market’s direction are available each day, made up of the kill levels, carcass weights, wholesale beef sold ahead positions. The packing industry is focused on grabbing sales, shipping product and leveraging the assets of plants and labor, comfortable with the knowledge that although fed cattle supplies are tight today, availability will improve in 6-8 weeks. In the meantime, they are clearly willing and able to own live inventory- evidenced by two back-to-back weeks of big negotiated trade volume.

It is also found in the market action itself. Dec made its high on its last trading day. Feb may do the same. Apr will become spot with a discount and will suffer from the fund roll the first 10 days of March. With an April 30 expiration, no one expects Apr LC to duplicate the behavior of Dec and Feb. But Apr can’t entirely divorce itself from live prices and if cash fed cattle prices push into the upper-$120s in the coming weeks, it seems unlikely Apr will sit patiently at $117 either. Therein lies the rub. There is risk the market stays better longer than the shorts ever imagined- if the fundamentals allow.

Copyright © 2017 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.

Cash on Fire

Posted on: 02/22/2017

By Cassie Fish, http://cassandrafish.com

Cash fed cattle prices are on fire this morning, trading as high as $125, a new high for the year. Negotiated country trade was underway simultaneously with the Fed Cattle Exchange on-line auction, where cattle brought $120.50 to $124.25. This strong cash action impressively on the heels of last week’s 125k head trade volume. $195-196 in eastern Nebraska has tripped a few cattle but is being passed, that equals $122.85-123.48 if the cattle yield 63%.

There is only one explanation for the market strength. It is the confluence of continuing improved beef demand and seasonally tight fed cattle supplies. Retail ads across the U.S. are once again full of beef promotions. Half-page full color ads showing succulent chuck roasts and T-bone steaks at attractive prices are now commonplace. One chain offered a buy one get one free chuck or round roast. After being shunned as too expensive for years, beef has regained its place on the plate.

This activity has been indicated by continued better-than-average out-front beef sales by packers. When the industry shoved 8.5% more beef through the supply chain in Q4 than the prior year at the cheapest wholesale prices since 2012, it set up 2017 with the potential to be the best beef demand year in many. Thus far this February, the kill levels are the highest since 2013.

To add to the torque of the move is the decline in weights. After month after month of huge carcasses, carcass weights are falling. This means less fat trim comes off each carcass too, supporting the beef 50s market which was so problematic for so long.

So, is this new high in the cash a blow off or a breakout? Many analysts have predicted this is all the cash market can do. But because demand has improved, it has inspired larger kills than generally expected this month and it’s clear that packers’ motivation to meet demand will support maintaining live cattle inventory. Packers are competing against one another for the first cut of cattle more and more as the offerings of market-ready fed cattle become greener. After years of plenty of fat, choice and prime cattle to pick from, cattle are being shown with fewer days on feed than in a long while.

As those in this business know, carcass weights and grading decline from now until May seasonally. With available supplies arguably more current today than in 2-3 years, which cattle a packer buys becomes more important to meet specific end user needs.

CME live cattle futures have followed the strength in live prices today, as spot Feb LC made a new high for the move, reaching the highest level since March 2016. Next resistance the Dec LC spot high of $123.70.

Copyright © 2017 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.

Gap and Go

Posted on:  02/21/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures didn’t wait around this morning to reflect the optimism for cash cattle and boxed beef prices this week, but gapped higher immediately. Spot Feb LC is leading the charge, taking out its last swing high, it made a new high for the month, reaching the highest level since January 26. It appears that Feb LC may follow in Dec LC’s footsteps and expire strong. Resistance for Feb looms from $120-123.70.

Technically, the market is in a strong position, with plenty of room to extend this rally to the upside. Friday’s rally was accompanied by an increase in open interest, another plus. The CFTC’s Commitment of Trader’s report was also positive, showing a healthy decline in managed fund longs and commercial short-covering. Perhaps the market has regrouped and is ready for another sustainable up.

Expectations for the increase in fed cattle supplies this summer and fall have kept futures’ discounts to cash at record or near record levels and caution in the air. But the aggressive fed cattle slaughter rate and improved beef demand occurring for weeks, is supporting fed cattle prices for now and likely will for another 4-6 weeks. There is more and more talk that cattle are being pulled forward as motivated cattle feeders eagerly trade cattle each week.

Last week’s negotiated trade was large, at 125k, the largest in 2017 and in over 3 months. Packers continue to pick up better-than-average +22 day sales which incentivizes keeping production levels up and inputs secured. One could argue that packers won’t need to buy as many this week on the heels of last week’s big trade, but forward contract numbers for March are down 80k head from a year ago, so packers will need to rely more heavily on negotiated trade for supplies.

Going home Friday, expectations for steady to firm cash were common. Today, there is speculation cash will be $1-2 higher this week. There is growing confidence cash cattle prices will retest the highs made in January in March. Boxes were higher yesterday, cementing the February seasonal low. Packer margins are still not great in the spot window, but other forces are at work, such as a continuing effort to more fully leverage plant resources and competition on the sales side.

Copyright © 2017 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.

Stronger Cash Prices Surprise

Posted on:  02/17/2017

By Cassie Fish, http://cassandrafish.com

A little bit of cash trade late Thursday at $119-120 caught some attention and was followed swiftly this morning with more of the same, $119-120- bettering the FCE on Wednesday and exceeding early week expectations. As hinted by Monday’s USDA report on negotiated, committed and delivered report, packers did lose some live inventory position and as are result, were more aggressive today than thought buying cattle. Trade is still occurring and even eastern Nebraska is strong at $190 with some passing.

This week’s stronger-than-expected fed cattle prices are a testament to the current tight supply of market-ready cattle. More and more green cattle are surfacing on the showlists weekly. Cattle feeders are making money and liking the basis and will keep cattle moving.

The packer continues to pick up good out-front beef sales which in turn, inspires keeping kills as large as possible given the tight supplies, even with spot margins less than desirable. With the seasonal low in boxes likely in place, modest price appreciation is expected, with the middles slowly moving higher out of their lows for the year thus far.

CME cattle futures have been reluctant to follow this better news and only just made new highs for the week. All contracts are higher on the week too, as the market conservatively grinds upward. In most active Apr LC, $115.72-80 stand out as key overhead resistance.

The technical indicators do show the market has plenty of room to rally before becoming overbought. If cash prices are higher again next week, then Apr LC futures could push back above the 40-day moving average and take another look at the unfilled gap between $116.65 and $116.75 left on the last rally. If the market could close above the $116.65 high, then upward momentum will build.

Fundamentally, March, less than 2 weeks away, can be a seasonally-strong potential powder keg for cash fed cattle prices. The confluence of tight cattle supplies and slowly improving seasonal beef demand makes March and early April the timing of more highs in the cattle market than any other.

No doubt, the live is the drive between now and the spring high and futures will follow its lead. With steer carcass weights, reported yesterday for week ended February 4, 11 pounds under a year ago, lighter carcasses are offsetting some of this year’s bigger kills. This powerful underlying fundamental will remain in play until May.

Copyright © 2017 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.

All Clear

Posted on:  02/16/2017

By Cassie Fish, http://cassandrafish.com

After much discussion regarding how much today’s slaughter could be impacted by the “Immigrant Worker Strike”, it turns out almost all cattle plants are running at normal, or slightly reduced speeds. Shortfalls, if significant, could be made up Saturday. This week’s kill is still expected to be in the 570-575k range.

CME cattle futures opened lower this morning after yesterday’s disappointing close, possibly in response to the nervousness surrounding the work slowdown. The low of the day was made early and the market has spent the rest of the morning clawing back to green.

Bids have surfaced at $186 dressed in the north and $116 in the south- all being passed. Cash prices are expected to trade lower this week, but very likely will be at least a couple of bucks above these bids.

Boxed beef prices are holding together well and there is not much beef for sale, paving the way to a gradual increase going forward. With production levels seasonally smaller and buyer interest continuing to surface, the outlook here is positive.

Today’s export report showed beef exports continue to be brisk YTD.

The Wall Street Journal’s weekly retail meat and poultry survey showed beef prices getting cheaper while pork and poultry prices edge upwards. The average beef price was $4.60 per pound, compared to $4.70 last week and $4.97 last year. Pork jumped up 0.58 cents per pound to $3.03 while chicken increased a dime to $1.77 per pound. Beef no longer seems out of line in comparison. Pork prices are expected to continue to edge higher at least in the short-term.

Futures are continuing their choppy, rather uninspiring trade as open interest continues to drop in the Feb and Apr, day after day. With the stable outlook for boxes and cash cattle prices, the futures’ discounts are perhaps, more than adequate. It’s obvious a move and close above yesterday’s highs would excite, but the market seems intent on conservative consolidating action for now.

Copyright © 2017 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.

Futures Recover; Cash a Bit Weaker

Posted On: 02/15/2017

By Cassie Fish, http://cassandrafish.com

Today’s Fed Cattle Exchange saw cash prices just a bit lower than last week, topping at $119.25. Perhaps yesterday’s futures rally had raised hopes that cash would trade steady this week, but the packer is bent on saving money if possible and regaining control of margins. With boxed beef prices near if not on their Q1 seasonal low, packers will try and save money on the buy side whenever possible.

Packers are predictably stepping down the kill to adapt to seasonally tight market-ready fed cattle supplies. This week’s kill is expected to be 570-575k, compared to 577k last week. The impact of tomorrow’s well-publicized “Immigrant Worker Strike”, a “national general strike against the policies of President Trump” is unknown and could reduce this week’s kill. If the kill falls short tomorrow, companies would try and make up lost hours on Saturday. Next Monday’s President Day federal holiday could also lower that week’s kill to the 560k level. Nevertheless, slaughter is outpacing last year by 30-40k head as of late.

Reduction in beef production will be supportive to wholesale beef prices, especially considering continued good consumer beef demand. This week retailers are widely featuring ground beef. One retailer was giving away 5 items for every beef chuck roast purchased.

Futures reversed their decline impressively yesterday, catching bears off guard, turning some technical indicators back up. Most active Apr LC rallied 262 points off its earlier week lows. Today’s two-sided action isn’t giving either side much satisfaction. All but the Feb LC failed at the 10-day moving average on today’s rally, but so far the market has held intra-day chart support. The market is very choppy, with Feb and Apr hanging on to higher on the week while the deferred months continue to sag.

There is significant overhead resistance in live cattle futures, but the continued price firmness in the underlying cash market, supported by tight supplies, robust kills and continued good beef demand- makes the downside limited as well. What’s left is sideways market chop until further developments.

Copyright © 2017 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.
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