Bad News Priced?

By Cassie Fish, http://cassandrafish.com

Perhaps CME live cattle futures have priced the bad news for now. In early trade, most active Oct LC traded down to $105.75, not far from key long-term support of $105 only to rally a fast 165 points. Not only is $105 big support, it has been the downside technical objective of many since the market topped in June. Now, the market is trading back above $107 but has yet to fully penetrate the key overhead resistance of $107.97 to $108.60.Futures are ignoring weaker auction barn sales in the Midwest today, yesterday’s Iowa trade of $110 with time and today’s Texas bids of $110, a harsh $5 lower than last week’s average negotiated fed cattle price of $115.17.

Futures are significantly oversold, a ton of open interest has come out of the market for a month and the selling appears to have exhausted itself for now. If the board holds, closes well and builds on today’s action, then another short-term low is likely in.

This week’s kill may top last week’s 641k, which was the largest of 2017, as the market absorbs its large supply into the pipeline. Last week’s USDA Comprehensive Boxed Beef report showed the third largest volume of 2017 and a pick-up in long-term forward sales as value attracts end users, seemingly a little early this year.

It is not new news to this market that fed cattle supplies are their largest of the year or that packer has the upper hand, which is why Aug LC traded $7 under last week’s cash average. But the gate rush fueled by fear inspiring cattle feeders to avoid a fall wreck by aggressively selling cattle, will go a long way in shortening the “wall” of cattle. August weakness may turn out to be a worthy sacrifice and go a long way to cementing a Q3 low this year.

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.

Leaking Lower

By Cassie Fish, http://cassandrafish.com

The malaise that dominated the cattle market last week is still casting its shadow today. After a couple of early attempts at green on the day, the first four live cattle futures contracts have slowly slid to new lows for the move.

Cattle traders remember well the fall bear debacles of the last two years and the fact that the market is oversold and discount to the cash fed cattle market are neither good enough reasons to buy futures. If a trader can’t sell it here, the safe move is to retreat to the sidelines and wait.

Last Friday’s Commitment of Traders report did give a glimpse into who did buy and sell the market as of last Tuesday’s close. Commercials covered a ton of shorts while managed funds liquidated longs and began to build a short position. Of course overall, total open interest keeps falling along with the market, with most active Oct now down almost 20k in 6 trading days.

It’ll be a couple of weeks before we get the final numbers but last week’s estimated slaughter and beef production were the largest of 2017, clocking in at 641k kill and the remainder of August are expected to see similar production. Last week’s +125k head negotiated trade volume at lower money is in the cue. August may well end up with the largest beef production month potentially of any August since 2011 and this large supply will keep a lid on cutout prices as this large supply makes its way through the system to the consumer.

Retail beef prices will likely become even more competitive. Last August, average retail beef prices had just dipped under $6 per pound for the first time in months and it was October before they really dropped hard. So as bearish as some are, cheaper retail prices in 2017 will keep product moving without drastically lower wholesale prices being necessary.

In short, last year the market had to seek a price level low enough to clear the backlog in fed cattle supplies and reignite beef demand- and it did. This year, fed cattle marketings are current and wholesale boxed beef prices are attractive to end users who have continued to feature beef much of this year and packer 2017 margins are exceptionally profitable. Perhaps the need for sharply lower prices this fall is not necessary, regardless of the fear that they are.

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.

Enough for Now

By Cassie Fish, http://cassandrafish.com

The deluge of selling which took 21,501 contracts out of CME live cattle futures open interest this week appears to be over. The charts have been damaged and fear factor has increased. Today’s quietly higher trade has done little to calm fears. Traders are wondering, with the market now oversold, if a recovery is on deck or whether next week will bring another collapse.

There is no argument that immediate fed cattle supplies are the largest of this year and for several Augusts. And with big supply comes price pressure. Though this does not explain the waves of selling that swamped the futures market this week, that came on the heels of last week’s very stable cash market action.

In this day and age of computerized trading, the who and the why remain a mystery to all but those clicking the mouse. There have been rumors and speculation of course, but the damage is done. With fundamental bearish analysis itself in large supply, the action can be explained to some traders’ satisfaction. Still, it is odd that the flood gates opened on Monday and the spigot ran wide open until yesterday.

It appears there was a large transfer of ownership from cattle feeder to packer this week at prices that significantly enhanced packer margins. This ought to support big kills as some plants are now buying for late August and early September. So maybe the break in futures, that inspired cattle feeders to sell aggressively, will have an indirect positive impact by ensuring kills big enough to maintain currentness. Shoving this much beef through the pipeline will keep a lid on boxed beef prices but that is really of little consequence to the packer who is focused on volume and sales realizations.

One of the chief lessons from Q4 2016 was when the pipeline expands to move more beef, any supply constriction that follows (remember the big production drop from Q4 to Q1 2017), a price increase is logical.

The key for the remaining 2017 cattle market is for the cattle feeding industry to maintain currentness through the peak supply of the next 4-6 weeks. That sets up the potential for a modest Q4 price recovery, assuming the excellent domestic and global protein demand continues.

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.

The Race is On

By Cassie Fish, http://cassandrafish.com

Most hedged cattle feeders can’t get cattle sold quick enough, ringing in profits, loving the basis. Cattle are performing extremely well in the yards post-heat wave and are closing out exceeding weight projections in some cases with +4 pound a day gain common. Others are selling cattle early for the same reason. All are hoping this market weakness results in lower replacement costs.

Today’s USDA Crop report may throw a small wrench in those works, with the estimated corn yield of 169.5 bushels per acre and crop of 14.152 billion bushels way above expectations. Corn prices are falling fast along with cost of gain estimates. So, despite cheaper fat cattle, cheaper corn than expected will provide some support for feeders.

There is cattle feeding equity around this year after a couple of very lean years and no one wants to let it get away. 2017 will turn out to be a decent year for cattle feeding after all most likely, with risk laid off on futures and the most cattle on feed since 2012 or maybe longer.

Mother nature is adding weight to cattle seasonally with steer carcass weights being reported today for the week ended July 29 up 7 pounds WOW, down 8 pounds YOY and at 875 pounds, 2 pounds over the 5-year average for the first time since March.

On the packing side, the hammer is down. Packers needed to buy cattle this week and got it done easily, taking on a tremendous amount of inventory dollars cheaper. Possibly the biggest kills and production of the year are rumored to be scheduled between now and Labor Day and profit margins will expand. End users will be inspired to keep beef features in the mix, attracted to great wholesale prices. Boxes may not experience a seasonal up this month but the downside is relatively limited and the volume produced and shipped will be huge, all good things if you are a packer.

CME cattle futures open interest has plummeted this week, losing over 16k contracts in live cattle futures as most active Oct LC dropped to early April chart points, only a couple of bucks above the major support at $104.50-105 and $15 off the contract high made in June. The market is oversold but bottom pickers are leery. Until cattle feeders are done rushing the cash market, futures traders will be careful not to step in front of this 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.

Hitting Bids

By Cassie Fish, http://cassandrafish.com

Cattle feeders are aggressively selling cattle today at new lows for the year, many determined to capture shrinking profits and stay current on marketings. Trade today has occurred from $114-115.50 and $185 dressed. The last time fed cattle prices were this low was December 2016, which is also the last time spot live cattle futures were this low.

Cheaper cattle costs ought to keep kills big and big kills require aggressive pricing to move through the system. This week kill expectations are 638-645k. This August is shaping up as one of the very few that may see no cutout rally at all, as moving what may well be the largest beef production of the year this month as well as the largest August beef production in 5-6 years is more important than price. The production surge is due to peak available supplies of cattle not carcass weight, a saving grace.

Instead of seasonal strength, the cutout may sag sub-$200- not seen since February 2017. Last year this week, the cutout was $200.54 and going back to the years of similar beef production like 2013, the cutout was in the $180s-190s for August. When examined from this perspective, it’s a reminder that excellent domestic and export beef demand in 2017 has resulted in robust prices.

Another saving grace are the aggressive retail beef features this week, choice ribeyes for $6.77 per pound and ground chuck from $1.99 to $2.48 per pound. Though August is a month involving lots of travel and is not known as a stellar beef month, at least the retailer is keeping attractive beef prices in front of the consumer that compete well against pork and poultry.

This week’s darkly bearish cash market tone has pushed CME cattle futures lower, but not limit down. Live cattle futures lost another 6.1k of open interest yesterday as the orderly liquidation continues. Futures are $5 lower on the week while cash will probably average close to $3 lower. Today at least, is a ‘cash weaker than futures’ day, as futures retreat to levels seen in April and Aug, Oct and Dec LC below the trading range carved out over the past few months.

Feeder cattle futures are finally losing to fats again, down $7 on the week, but many contracts are still above their June low. There are many who need to buy cash feeders and for those who haven’t paid the higher feeder prices the last few weeks, lower cash feeders would be a welcome by-product of this bearish downturn.

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.

Perception

By Cassie Fish, http://cassandrafish.com

Some cattle numbers crunchers believe August is the timeframe for peak market-ready fed cattle supplies while others steadfastly predict September/October encases a ‘wall’ of fed cattle that will take the market down hard, regardless of front-end currentness. Some even say the supply will be so large, it will swamp the available fed cattle capacity though it’s important to point out, not everyone agrees with this assessment. Still, the drumbeat of this worry has grown louder since turning the calendar to August and yesterday’s unexpected and cheaper out-front smattering of cash cattle sales were apparently a response that worry.

After the cash market strength late last week, most of those actively involved in trading negotiated fed cattle had expected prices to be fully steady this week, maybe even a buck higher. But nervousness and corresponding lower trades in the out-front cash market quashed that thought process. An unconfirmed $116 trade for 1-14 days out has been rumored this morning. Packers are now excited by the prospect of taking out the $117 cash support that has held thus far.

No one seemed to know what caused the big futures sell-off yesterday, which was accompanied by a significant flush in open interest, down 4.1k. Maybe it was the leaky out-front cash market. Maybe it’s more fund liquidation. Maybe it’s the lackluster wholesale beef market. Regardless, Oct went limit down, reached the lowest level since late April and followed through to the downside today. After reaching $110.17 today, futures have scrambled higher, as the selling deluge subsides for a minute.

One thing most folks can agree on that the futures market is tedious and tough to trade. Punishment is frequently doled out for buying rallies or selling breaks. Open interest tells us more and more traders are moving to the sidelines.

Anyone who’s been around the cattle market knows that wrecks are rarely telegraphed ahead of time and the 2015 and 2016 fall declines were beyond predictions or perceptions.

But until the calendar had been turned to September and the wall of cattle is revealed or is no wall at all, it may be difficult if not impossible to quell the fear motivating sellers.

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 So Fast

By Cassie Fish, http://cassandrafish.com

CME cattle futures poor action today has disappointed all those enthused by Friday’s close. But then it’s August, kills are big, plenty of protein is for sale and competing for consumer dollars split between back-to-school prep, vacations and simple, stripped-down, summertime eating. High-end steak restaurants typically see a slow-down in August too, which will reverse post-Labor Day.

In the meantime, the cattle and beef industry is pushing the largest beef production through the pipeline for August since 2013. The cutout has been very slow to carve out it’s late July/early August low this year though a seasonal modest, seasonal rally is still expected between now and the end of the month. But it’s been a slog and none of the primals are providing much leadership. The blistering cutout rally of May and early June may be a memory to many but end users haven’t forgotten and a certain amount of pay-back is still being played. Profitability throughout the supply chain and zero sense of urgency are a combination for a slow price recovery.

Last week’s 634k kill is expected to be followed by a 638k this week. As of last Saturday, the industry has slaughtered 1.037M more cattle than last year and the number will continue to widen this quarter. Packer margins are still solid, but since it’s more effort to move product, packers are still not enthusiastic.

Packers let their cattle inventory drop last week, buying only 76k head for immediate use and 15k for 15-30 days out. That lighter buy ought to be enough to push cash cattle prices a buck or two higher this week than last week’s $117.30 average. Though today’s disappointing futures action will begin to erode thoughts that last week’s $118 will now be exceeded.

Such is the way of things in this market. It’s possible the market is in a state of loose equilibrium and futures in a swingy sideways chop.

Most active Oct LC is unexpectedly back to the bottom of the trading range today and it was noted in the recent Commitment of Trader’s report that managed funds exited more longs and began adding shorts, though not to a significant degree. Open interest has liquidated dramatically in recent months and doesn’t appear to cast a major threat.

Is today’s action any more bearish than it was last Monday when the market was down here? The Aug/Oct spread is 150 points wider than a week ago. Does that fact that the market is methodically working through supply in a relatively efficient but entirely lackluster manner provide no incentive to be long, even after an outside week with a higher close on Friday? Perhaps not. Maybe the market is expressing disappointment today and nothing more.

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.