Not So Bad So Far

Posted on:  3/29/2017

By Cassie Fish, http://cassandrafish.com

The bearish rhetoric in the cattle and beef world continues to dominate conversations and attitudes, though neither the futures action nor the Fed Cattle Exchange auction this morning seemed as negative as expectations.

It was worth noting that today’s cattle on FCE were greener and lighter than in a long time, possibly 3-4 years. Sale prices were cheaper than last week and about half the cattle remained unsold. Still, $133 topped the trade and some 1200 pound heifers with 119 days on feed in Nebraska sold for $131. It was clear that packers weren’t willing to pay top dollar for Kansas and Texas offerings, the two states that are the least short of market-ready supplies. Though some of the Texas offerings were steers weighing under 1200 pounds! Bears or no, the north will remain excruciatingly tight until May.

Weights will continue to drop seasonally with the most dramatic decline yet to come. If steer carcass weights stay 15 pounds under a year ago, weights will bottom at 844 pounds, 5 pounds below the 5- year average and the lowest since 2014. March weather may not be going out like a lion, but it is wet, cold and windy in some feeding areas this week. The number of choice and prime cattle is also falling seasonally, making a new low for the year in the most resent USDA report.

CME cattle futures have put together a second day of modest gains, much to the annoyance of the many shorts. Many bears are confident it’s only a matter of time before futures collapse, discount or no.

Boxed beef prices continue their normal seasonal decline, the spot choice printing down 0.50 this morning at $219.07, about $4 off the high. Predictions of how much the cutout will break run the gamut, but a decline to the low teens would be average. Buying interest is expected to surface on the break as retailers, distributors and food service all look to supply the busy post-Easter to July 4th beef-heavy window. Grinds and ends are still priced cheaper than the last couple of years while the rib and especially the loin, had erased most if not all the gap between this and last year and are now correcting- down $7 and $10 from a week ago respectively.

Packers will work hard to buy cattle cheaper this week and next, reluctant to give up any margin and intent on widening that same margin in Q2 versus Q1. Another month of tight fed cattle supplies will make this task less than easy, though psychology is going their way. Someone sold cattle in the mid-$120s for mid-April delivery yesterday.

It’s looking like the final kill for Q2 will once again exceed analysts’ expectations from just weeks ago, estimated at 605k-610k.

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.

 

Go Green

Posted on: 3/28/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures are higher on the day after a big intra-day technical correction the last couple of trading days. The market is grinding higher, having digested at least part of the expectations for lower cutout values this week, responding instead to the massive discount of futures to cash.

And historically massive they are, last week’s 5-area average of $130.91 puts most active second option Jun LC $19.66 below cash when on its low today. That’s a prediction of a 15% cash decline by July 1, not unprecedented but perhaps with the fed cattle marketings their most current in years, rooted more in fear than in reality.

         Worry Over OI

Most analysts are ignoring the record discount and are focusing instead on another near record, that of live cattle open interest. OI has increased 15.7% in the past month and is nearing the all-time record posted in April 2011. Though the longs have fared better than the shorts, since the market is in an uptrend, there is a belief held by many that the managed fund longs will be flushed out on a break.

         More Worry Over Cutout

The bears are also anticipating a break in the cutout, many insisting that the cutout has topped for the spring because of the degree of the spring rally, up 18%. Yesterday’s spot cutout printed lower, led the loin, which has experienced a spectacular rally in Q1. Here’s a look at a weekly loin chart as of last Friday. It’s down $7 from last week.

         Yet Out-Front Sales Solid

Yesterday’s USDA Comprehensive Cutout report confirmed the trend of above average out-front beef bookings continues. Below is a chart that sums this trend up nicely.

         Food Service Features Beef

Golden Corral, a 500-locations, buffet-style restaurant that appeals to those with a big appetite and a modest budget is currently running a prime-time ad promoting steak. A look at their website http://goldencorral.com shows beef is playing a major role in their “Meat Lovers Spectacular”.

         Time and Price

The belief that a top is in will continue to dominate. The question remains as to whether the decline in cash fed cattle prices will be swift and steep enough to satisfy futures as time wears on. It takes ‘enough cattle to easily go around’ to give packers the needed leverage to take prices down in chunks. Though still black, packer margins will contract this week with last week’s highest cash prices of the year being paired with this week’s lower cutout. The kill estimate for this week is 605k, pared down from last week’s 613k.
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.

It’s a Top! Or is it?

Posted on: 3/27/2017

By Cassie Fish, http://cassandrafish.com

It would be very difficult to find a cattle analyst not confident that both the cash fed cattle market and CME cattle futures have topped. Last Thursday’s hook down in most active Jun LC combined with a huge surge in open interest to the highest level since 2011has most traders convinced the spring high to summer low move has begun. If it weren’t for that pesky, historically enormous discount of Jun LC to cash prices, being short could be a slam dunk.

Technically futures are overbought and today’s action cements the belief the top is in, regardless of continuing improvement in fundamentals. First level of support for Jun LC is $110.62, the 10-day moving average and last week’s low of $109.15.

Some have given partial credit to last week’s rally to the problems in the Brazilian beef export business, though those in the know never expected a materially impact. Now that China and Egypt, two of Brazil’s top customers have restored imports, today’s futures sell-off is being blamed partially on that news, whether accurate or not.

Last week’s cash fed cattle price was the highest of 2017 and the highest since May 2016, averaging over $130. This week, with April contracts within reach, cash is expected to be lower. Boxed beef prices just completed an 18% rally last week and are also correcting. Some say the run-up in boxes is done period, though a normal seasonal suggests late March weakness will be followed by Q2 strength.

It was the unexpectedly large 613k kill last week that is adding to the bearishness for boxes. That kill was the largest for that particular week in March since 2012 and the largest since pre-Thanksgiving. Important to note, however, it was the second highest beef production of this year because weights have dropped substantially below a year ago -15 pounds as reported last Thursday for the 2 weeks prior. Each week the packer slaughters greener and greener cattle, so the decline in weights will continue to be steep.

Friday’s USDA Cattle-on-Feed report contained some interesting facts. The industry has a mere 2,000 head more cattle on feed March 1 than one year ago. Thanks to another month with an aggressive marketing rate, the industry managed to replace only 46k head more than marketed. The take-away here is the cattle feeding industry is turning cattle quickly and front-end supplies are tight.

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.

Stand Off

Posted on: 3/24/2017

By Cassie Fish, http://cassandrafish.com

For the first time in a while the packer is making a stand. Putting out lots of rhetoric that boxed beef values are topping, packers have not upped bids this week post-FCE Wednesday sale, instead coolly remaining patient. Even going as far as to say some will be “out of the market” next week entirely.

Packers have asked some cattle feeders for access to April contracts early and in at least a few cases, the cattle feeder has agreed. It will be one more week of course before the industry has full access to their 307k head of April forward contracted inventory. Supplies of fed cattle are also adequate in Texas and Kansas, so the $126 bid earlier in the week have not budged. Last week’s 5-Area average price was $128.56.

In the north, bids range from $208-212 with some packers offering stepped down bids by week out through April, once again an indication that the packer, as well as the futures market, are convinced cattle prices will be headed lower soon.

The full court press is on to stop, what has been an impressive rally in fed cattle prices thus far in 2017, and will stay on for a least a couple of weeks. Of course, packer margins are black currently and the pipeline of beef in the supply chain is still relatively clean. It is the anticipation that this week’s 602k kill will put more beef than the market can bear into the system at the current ‘high’ prices. For perspective, cutout values are back to year ago levels for spot sales.

The release of USDA’s official weight data yesterday showed steer carcass weights 15 pounds below a year ago, a not-too-subtle reminder, that months of aggressive slaughter have restored a great deal of currentness to the front-end.

What the market will really come down to will be demand from now into June. If demand continues to be robust and the big sold-ahead position is maintained, that will provide added incentive to grow kills which requires packers to avoid letting their cattle inventories slip. Packers are counting on the increase in market-ready fed cattle supplies in May, but there is no doubt cattle have been pulled forward and there are many April cattle that have already been sold. It will very informative as to how many May cattle die in April.

At the very least, the cattle market is in the best fundamental position in years heading into greater Q2 supplies and that fact ought to cushion the seasonal decline in cattle prices.

Futures have traded both sides but have been more resilient than anticipated today after yesterday’s sell-off. The spot Apr LC chart shows a flag forming. Obviously, taking out Wednesday’s high portends another leg up. The rest of the contract months will trade much more conservatively but Apr LC’s discount will make it tough to take it down much, unless cash prices collapse. Apr LC will not only likely close higher on the week but has a great chance to close the highest since 2016.

The big gains in open interest this week is being viewed as potentially bearish. Today’s likely neutral to bullish Cattle-on-Feed report is being ignored.

Regarding the fiasco in the Brazilian beef packing industry this week, the type of beef that country exports is not the type of beef that the U.S. exports. China and Hong Kong, Brazil’s two biggest customers, will likely seek beef from neighbors Australia and New Zealand, which does have the impact of tightening up the global supply of manufacturing-type boneless beef.

Copyright © 2016 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.

A Pullback After a Big Day

Posted On: 03/23/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures have traded both sides today, consolidating after yesterday’s impressive rally. For chartists, yesterday looks like a break out to the upside in many contract months, after an almost 3-month consolidation. Not only do the charts look good but the rally was accompanied by huge volume (117k) and an open interest increase of 7k. Futures are overbought, but that alone is not enough to insist the market has topped.

On the fundamental side of the ledger, nervousness about the sustainability of the cutout rally are sited most frequently as a sign the market is topping. Though it’s worth noting that packers are black and still hold big sold-ahead positions.

Today’s export report shows another week of excellent beef sales. When combining exports, formulas and sold-aheads, the beef ‘sold’ position is still on solid footing. The worry stems from this week’s expected production increase which may top 600k and the excess beef that might need to be shed in spot sales. Apparently beef buyers are complaining about prices on some, but certainly not all, cuts. With Easter three weeks from Sunday though, next week’s spot production (21 days) will push into post-Easter.

After a sharply higher FCE auction result yesterday the country trade did not develop. Packers are keeping a cool head and may push this week’s trade into tomorrow. Though with a likely bullish USDA Cattle-on-Feed report due out tomorrow as well, the trade may not wait until after 2 pm. The report is expected to show the industry marketed almost as many cattle as they placed and the net YOY COF gain as of March 1, will be negligible.

What packers have continued to attempt to do this week is buy cattle for delivery in April, a testament to the fact the market-ready fed cattle supplies will stay tight until May.

Past May there is a lot of debate as to how quickly and substantially numbers will increase. What is known is there has been a dramatic gain in front-end currentness. Weights won’t bottom until May and fed kills continue to exceed expectations. Undoubtedly, the industry has and will continue to pull cattle forward. This fact will make it more difficult for the market to fall as fast or far as the last two years and, if demand holds, could result in a higher low than any analysts thought less than a couple of months ago.
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.

Acceleration

Posted on:  3/22/2017

By Cassie Fish, http://cassandrafish.com

For a change, CME cattle futures gapped higher on the opening and quickly rallied, positive market action not witnessed often in recent years. Shortly after the Fed Cattle Exchange on-line auction got started, already strong futures made a run to limit-up in Apr and Jun LC.

Higher prices on today’s weekly FCE, ranging from $128 to $136.50, was all it took to keep the drive alive. Some market watchers might be surprised at today’s cash market strength while others understand the combination of big kills and tight fed cattle supplies results in higher prices. A 600k head kill for this week is now a possibility.

The FCE is the warm-up for the bulk of the negotiated cash cattle trade negotiated in the country. It will be difficult for the packer to alter this week’s course of action now. Cash prices will likely average over $130 this week for the first time since May 2016.

Spot Apr LC reached the highest point today since 2015, the first 6 weeks the contract traded! It’s contract high is $132.52, made the first week it was listed. Retesting that area no longer sounds impossible. Certainly, checking the Feb LC spot high of $127.12 is not out of the question. Even the gap on the spot daily at $125.65 remains to be filled.

Even though Apr and Jun LC traded limit up, they cannot hold gains. This behavior is consistent with the market’s tone since the bottom, characterized by caution on a good day and fear on a bad one. What is also true is that if one has been long the market and patient, today’s reward is hard not to bank, since it has been a long time coming.

From a big picture, technical viewpoint, $115 to $125 now presents as a major area of support. With cash pushing up into the $130s and currentness becoming a more potent, positive market factor as each day passes, most active Jun LC look far from overvalued at today’s high of $114. Analysts agree that June cattle prices will be cheaper than they are today. But many have underestimated the power of demand, the shortness of market-ready cattle, the desire of the packer to ramp up kills- all contributing to the durability of this fed cattle market rally. Does one stay wedded to the assumption the market will break back under $110 in June/July or do these developments now beg for a different approach to the remaining 2017 cattle market?

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.

Not Done Yet

Posted on:  3/21/2017

By Cassie Fish, http://cassandrafish.com

Despite daily calls for a top, the cattle market continues to grind higher. Today, new highs for the move have been carved out by all contracts, some pegging life-of-contract highs. The action is methodical and orderly, with zero fanfare, following yesterday’s nervous choppy trade. Open interest continues to build during this uptrend, especially in Jun and Oct LC as of late. The last time OI was this high was the spring of 2014.

The release of yesterday’s USDA Comprehensive Boxed Beef report showed that out-front sales once again exceeded a year ago and the five-year average, even though wholesale values have increased for several weeks in a row.

Interest in booking beef out-front continued despite fears of the contrary. There is no evidence of wide-spread resistance to higher prices nor that retailers have plans to back away from what has been a very lucrative run for beef features since last October. Post-Easter, Mother’s Day, Memorial Day and Father’s Day -the heart of the beef season- is just around the corner and with plentiful supplies and prices below a year ago in most cases, plans are full-speed ahead.

Cattle traded in Kansas yesterday for mid-April delivery at a rumored $125 and a $126 bid in the south has already surfaced today for immediate ship. Last week’s average price of $128.64 will likely be topped this week as packers focus on maintaining inventory to supply growing kill levels. The only region of the country with an uptick in fed supplies is Texas and Kansas and that will continue to be the case for another month.

As every day goes by, the discount held by CME live cattle futures to cash prices appears less and less tenable. The futures market’s sole focus on the well-known supply increase, when that is obviously not entire fundamental story, is frustrating to some and a bad joke to others.

Thus far, the story of 2017 is one of demand, not supply. The market has rallied since October congruent with big YOY gains in beef production. Big supplies at the cheapest prices in years sparked retail, export and food service interest-and they continue coming back for more. At some point this market will have a normal seasonal downturn, very likely in mid-Q2. But it’s still Q1.

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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