Correction Time

Posted on:  01/20/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures have acted tired all week so today’s correction is not a surprise. In the wake of great cash cattle news yesterday, it’s a classic “sell the fact” trade. The surge in open interest in live cattle futures seems to have slowed too, signaling it might be safe to get short this overbought market for a trade.

So far, the market is hanging on to higher on the week, but last Friday’s closes are nearby, so a more negative technical outcome is within reach in Feb and Apr while Jun is already slipped into negative week-over-week territory. Jun LC reached its highest level since June yesterday, and unquestionably this move to almost $110 has generated a tremendous amount of hedge selling by cattle feeders.

There is a larger question surrounding this week’s action and that relates to whether this 3-month uptrend has ended- or not. Certainly, futures appear to be at the beginning of another 300-500-point break, trading back below the 10-day moving average. The broader question is easy to debate but is not an easy call.

Coming up in the next couple of weeks there is a USDA Cattle-on-Feed report with an expected bullish marketing number supporting the nearby futures. Next, a long-awaited USDA Cattle Inventory report, which is supposed to quantify the cattle industry’s well-known expansion already reflected by the discounted structure of CME cattle futures.

Also underway is the stress and strain of multiple seasonal shifts. Packers are on the front lines, grappling with them all. Slower beef demand and sluggish boxed beef prices, fewer fed cattle supplies until Q2 relative to the last several months and collapsing margins. Packers will be determining when to cut hours, where to cut and how much to cut. Running more hours is beneficial to the packing industry in multiple ways, the most obvious is capacity utilization. But February and March almost always require a contraction in production.

But it will be several weeks until fed cattle supplies begin to increase significantly and the fact that the industry slaughtered 9.63% more fed cattle in Q4 2016 than Q4 2015 has placed the cattle feeding industry in a more current position. The expansion of the beef cowherd and larger feeder cattle supplies is yet to be reflected in cattle on feed numbers. This next report will likely show COF slightly below year ago, as of January 1, 2017. Thanks to reluctant sellers and ample feedstuffs, feeder cattle movement has been, and will continue to be, spread out tremendously over time.

The conclusion here is that the downside in the cattle market is limited for a while. A more sideways pattern may develop, but there is a strong seasonal for edging to new highs in March and early April, and it is too early to rule that possibility out.
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.

Cash Surges

Posted on:  01/19/2017

By Cassie Fish, http://cassandrafish.com

Negotiated fed cattle prices surged higher this morning, topping at $123 so far as all packers competed for tighter fed cattle supplies to replenish physical inventories. Cash prices have not traded at this level since late June 2016.

A continued sluggish boxed beef market was irrelevant today as packers were forced to up bids from Texas to Iowa. Some cattle purchased in Nebraska are bound for plants in Kansas, as overall industry currentness continues to increase.

The only missing element are declining carcass weights, with the latest USDA data for the week ended January 7 posting steer carcass weights up 3 pounds from a year ago 5 pounds from a week ago. Most anticipate weights to drop hard in the coming weeks. For that same week, the actual cattle slaughter was 5k head greater than estimated, consistent with the trend of big kills through the holidays.

It is these big kills over many months that have resulted in the cattle feeding industry finally returning to level of currentness not seen since the first half of 2014.

Seasonally, fed cattle supplies typically tighten from February to mid-April and this year is no exception. Fed cattle prices will likely be supported through this period, with the pressure on the packing industry to slow kills and manage tight margins. Next week’s kill will still likely push 600k, beef supplies needed to fill sold aheads.

The response of CME cattle futures today has been modest since many contracts are overbought. This entire spring rally may very well be led by the cash, not the futures market. So far, the futures rally has allowed short hedgers to lay off risk, with commercial hedgers taking on the spec longs.

It’s worth remembering its only January and even last year the market managed to maintain a spring seasonal rally until the third week in March. The set up this year is dramatically different and potentially more friendly. There may be a few more cattle available in Q1 2017 than the same time frame in 2016 but Q1 beef production will drop harder than normal from Q4. Feedyards are much more current and packers are coming off 9 consecutive months of huge profits. All these factors will provide underlying market support.

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.

More New Highs

Posted on: 01/18/2017

By Cassie Fish, http://cassandrafish.com

Both cash cattle and CME live cattle futures have carved out new highs for the move today, the FCE auction bringing $121.25 top, the highest cash has traded since late June/early July 2016.

Spot Feb LC methodically and conservatively pushed over $120, its highest level since March and up $6.47 since its last pullback earlier this month. Today’s futures rally seems steeped with caution, despite the solid cash performance. Some technical indicators are overbought once more, quashing enthusiasm to buy the rally. There has been a massive build up in open interest on this rally, up another 3k+ yesterday.

A combination of seasonally tighter fed cattle supplies and weather-impacted feedyards and packing plants is supporting both cattle prices and boxed beef values, which were higher again today after gains yesterday. Still the cutout is trading at the same level it was in December, a clear expression of the dramatic loss in packer margins.

Yesterday’s USDA Comprehensive Cutout report confirmed active spot volume as well as another round of active 22+ day bookings, which will incentivize packers somewhat to slaughter 590k-600k next week. This week’s weather-shortened kill will come in around 570-585k. A resumption of a normal kill next week requires a replenishing of physical inventory. Still, packers will be treading carefully, critically examining slaughter schedules and inventory needs against sold ahead positions- hoping to avoid a dive into red ink.

         Remarkable

One amazing statistic was released today by the USDA that’s worth mentioning. The week ended January 7, 2017, had the highest percentage of cattle grading choice than any time in history. Not just for this time frame, anytime. Obviously reflecting the great genetics of the U.S. commercial cowherd and stellar fall feeding weather, this statistic is remarkable. Throwing in the prime graders, the choice+ percentage is a touch under 79%. Wow.

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.

Stormy

Posted on:  01/17/2017

By Cassie Fish, http://cassandrafish.com

In the country, a well-publicized ice storm reduced yesterday’s cattle slaughter and will impact today’s as well. The USDA reported a 72k head kill and there’s talk it could be revised down. Today’s will be reduced too and for the week, estimates range from 570k-580k.

The impact of the reduced kill is helping boxed beef values cement their low even though big spot volume last week along with brisk 22+ day booking combined for the best boxed beef volume traded since before the holidays, surpassing last year’s trade volume and nearing the 5-year average volume. Choice boxed beef prices are expected to appreciate this week at least $2-3.

Friday’s pre-storm negotiated fed cattle trade ended up at a new high for the move, mostly at $119 with decent volume of 91,499 head, 77k for 1-14-day delivery. That same USDA report showed a big number of cattle delivered to the packer last week from all sources- formulas, contracts and negotiated- obviously needed to supply last week’s enormous 609k kill.

Just how big was last week’s kill? Well it was the largest “first full kill week of January” since 2011 and the largest since 2013 for the second week of January, ignoring holidays. The take away simply that packing industry continues to run hard.

This week packer margins are likely near a scratch to a little red in some plants. Though this week’s reduced kill and higher cutout may boost margins fully back to profitable. It remains to see what kind of wholesale beef business volume occurs this week though talk is so far, it’s been a little slow.

Cash fed cattle prices this week are expected to be fully steady to possibly $1-2 higher, depending partly on plans for this Saturday’s kill as well as next week’s slaughter. Showlists came in showing a significant decline this week and the tough weather has impacted cattle to varying degrees.

The storm in the real world has been modestly echoed today in CME cattle futures, with prices gapping higher in some cases and pushing into new highs for the move in others. Open interest increased yet again last Friday and Jun LC now exceeds spot Feb LC in OI. Jun LC made a new high for the move Friday and followed through impressively today, reaching the highest level since July 2016 and trading into a gap area left back in June. The significantly discounted deferred live cattle futures aren’t the only market ignoring long-term bearish fundamentals as front month corn futures today traded their highest on a spot basis since July 2016.

Friday’s Commitment of Traders’ report confirmed continued buying by managed funds and index funds and selling by commercials as short hedgers continue to lay off risk. Money flow into commodities continues to make itself noticed.
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.

Quite a Set Up

Posted on:  01/13/2017

By Cassie Fish, http://cassandrafish.com

A wild futures trading week, a potentially crippling weekend ice storm and packers that need inventory are culminating on this Friday ahead of a 3-day weekend.

After a two-day ugly break, CME cattle futures have clawed back to green today and are holding above last week’s highs. Whether the high on Wednesday was a top- or not is still in question and today’s action so far has provided little clarity. In Feb LC, Wednesday top was $119.70, support is $114 and broad resistance exists from $120 to $125.

The enormous ice storm which is predicted to stretch from the Texas panhandle up through Kansas and Nebraska where multiple packing plants are located will impact Monday’s kill which could dip under 100,000 head. This week’s kill, on the other hand, will be a monster, coming in at 605-609k.

Boxed beef prices were expected to find a low next week after a horrendous break, even before the smaller kill due to the ice storm. But the damage to packer margins will be done as they see their first red ink in some if not all plants since Q1 2016.

The cash fed cattle market is an obvious stand-off, with packers resisting to pay steady, let alone higher. Packers had limited success buying a few cattle steady to cheaper the last couple of days aided by the sharp futures market sell off. But today’s green futures and the packers need to replenish inventory after last week’s smaller negotiated buy and this week’s big kill, is very real. The negotiated trade may not occur until this afternoon, likely at no worse than steady money and possibly $2 higher, or more.

Beyond this week, some analysts are already calling next week’s cash trade lower. It will be important to gauge the level of beef buying interest by retailers next week at these attractive, lower wholesale prices and considering the widespread beef features this weekend around the country. Wholesale beef prices are well below a year ago whereas wholesale pork prices are not, giving beef one more reason to garner retail favor.

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.

Volatility Returns

Posted on:  01/12/2017

By Cassie Fish, http://cassandrafish.com

It’s been the first wild week in months for CME cattle futures. A limit up move followed by a near limit down move hasn’t taken place for a long time- and hasn’t been missed by most market participants.

Big money flow into CME cattle futures this week, partly an announced reallocation of positions for 2017, resulted in extremely heavy volume and an open interest surge. Though we won’t know until Friday’s Commitment of Trader’s report, it’s likely the fund buying was met by heavy commercial selling.

So, after making new highs for the move, Feb LC has retreated to just below last week’s high of $116.65 and is still about 200 points higher on the week. Of course, it’s only Thursday so theoretically, the market can still close lower on the week. Last Friday’s close was $114.82 and the $114 area has now become an important support area both on the Feb LC and spot charts.

At the same time as the futures drama, boxed beef prices took a major hit, with the rib primal down $18, chuck down $20 and round down almost $18. The loin is down a mere $9. Over all, the choice cutout is down $14.26 from a week ago and a bottomed isn’t expected until next week, lower still.

How did this happen? Big beef production through the holidays is part of the explanation. Between December 12 and January 7, the industry killed 254,000 head more cattle than last year. Perhaps the eagerness to bank a very profitable December for packers incentivized the big kills.

When beef movement finally slowed down dramatically last week, as reported by the USDA in its weekly Comprehensive Cutout report, the excess production created a problem fixed only by clearing product through the system at lower money. The velocity of the cutout break has surprised and given the end user yet another great opportunity to book attractive values forward.

The larger question looming is whether the cattle market has put in a major top or not. Last year’s rally lasted 13 weeks. If the market topped with the Dec LC expiration at $123.70, that was 11 weeks and a 29% gain, historically large. It’s worth pointing out that the 2-year decline the market experienced was even more “historically large” and that the fundamentals, such as declining weights, front-end currentness, expanded domestic and export beef demand are now in play. At the very least, a reasonable trading range will likely prevail in Q1 and early Q2 between $110 and $120 with more upside possible depending on the still-to-play-out supply scenario.

Just released USDA data for the week ended December 31 showed steer carcass weights up 3 pounds from a week ago, down 4 pounds from 2015 and up 3 pounds from 2014. The steepness of the carcass weight decline from now until May 1will be very telling regarding the overall market.

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.

Wow

Posted on:  01/11/2017

By Cassie Fish, http://cassandrafish.com

For futures traders, yesterday’s enormous futures volume and increase in open interest that accompanied CME cattle futures push to new highs was jaw-dropping. Yesterday’s live cattle futures daily volume was 119,144 contracts and open interest increased an incredible 8,754 contracts, possibly a daily record. Total LC OI stands at 323,835 contracts. That is a 63,407 contract increase from the October bottom and 84k from June 2016 OI low.

This increase has been fueled by an increase in managed funds, index funds and hedgers. But as traders know, increasing OI and new highs are a bullish combination. How high OI goes is as debatable as it is unknowable but the all-time high occurred in 2011 slightly above 400k.

Feb LC, which is not getting the fund money influx, led the charge yesterday barreling past the last swing high and reaching its highest level since March 2016. It’s dynamic limit-up move pushed short term technical indicators into overbought territory once again. Today, the market has quietly traded both sides, staying above the old $118.50 high. Feb did fill the gap left on the spot chart by the Dec and has overhead resistance from $120 to 124.

Over on the fundamental side of the world, fed cattle prices are working higher, fueled by tighter fed cattle supplies and packers needs. The Fed Cattle Exchange averaged about $1.50 higher than last week’s 5-area average. The country trade is likely to trade at $120 as well, possibly higher depending on immediate packer needs.

Boxed beef cutout values are headed in the opposite direction, dropping $10 since January 4 with more downside to come. Larger-than-normal production over the holidays coupled with very slow boxed beef sales volume last week seems to have caught the packer with too much beef unsold. It will take lower prices to clean up offerings. The confluence of these two events has squeezed packer margins dramatically and red ink (not expected until February) will likely be seen on next week’s P&L.

The good news here is the retailer has stayed on beef features, with ads on everything from 73% ground beef to bone-in ribeyes to chuck roasts and round steak and strips. Ground beef features for $1.79-$1.89 are common. If there is good clearance to the consumer, then the clean-up of boxes at lower money ought to be good.

Still, kill cuts are anticipated perhaps sooner than February because of the margin collapse, though none have been announced yet.

A potential weather system this weekend in western Kansas could impact cattle availability if it turns severe.

Lots of balls in the air for this market currently. Two of the biggest differences from January 2017 than the past 2 years are significantly greater feedyard currentness and better consumer beef demand. Both factors will provide support for this market on setbacks.

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.