Quiet Erosion

Posted on:  6/28/2017

By Cassie Fish, http://cassandrafish.com

Most active Aug LC finally purged about 3.8k contracts on yesterday’s ugly break and today has made a new low for the week. The market is refusing to completely collapse, but acts soft just the same. There is a sense of quiet anxiety watching the market trade, fueled by ugly futures charts and the lack of bids in the country.

Packers have been exceptionally quiet this week. A regional packer in the north has indicated they would call at $191, $5 lower than last week’s average and a major just surfaced in the upper $180s. The south has yet to be bid. Today’s on-line fat cattle auction, had plenty of lots unsold and what did trade was $1.50-2.50 lower than last week’s 5-area average.

It appears this week’s negotiated fed cattle trade will likely return to the $118-120 area where the market last traded in January. If it weren’t for boxed beef prices collapsing, ideas that cash might be steady next week would be surfacing more readily, since packers will be buying for a full kill week then. But confidence that the negotiated cash prices will bottom soon is low.

The market outlook continues to be tenuous. Predictions for the degree of the seasonal cutout decline have worsened as buying interest by end users seems to have dried up for mid-July. The choice cutout could drop below $220 next month.

Ground beef was well represented in today’s ads for the upcoming July 4th holiday. Prices and fat blends were all over the place, but some sub-$2 features were noted. It is the expensive middle meats that have vanished from the ads and are losing chunks of value which is very seasonal and expected- but nonetheless having a severe impact on overall carcass values.

As bearish as the outlook is for next month, Aug LC seem comfortable at $5 back of this minor test of this week’s cash so far, giving some credence to the thought process that the $10-12 basis which hung around for months is no longer the norm as the market flirts with transitioning to a tighter basis for the second half of 2017.

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.

Another Disappointment

Posted on:  6/27/2017

By Cassie Fish, http://cassandrafish.com

After opening higher this morning following yesterday’s rocket-ship limit-up close in Aug LC, CME cattle futures turned tail and collapsed, disappointing bulls and bottom-pickers and leaving many scratching their heads.

The rally, which slowly began last Thursday and culminated today, went a fair way in correcting some of the oversold intra-day technical indicators. The daily indicators are still oversold but have at least come up for some air.

There are plenty of traders looking for a bottom here, giving up on the idea that managed funds will be flushed out of longs after a $14 break produced little in open interest liquidation. In feeders, it’s the seasonally lighter runs, good feedyard profitability and empty pens in the north that support that theory. On fats, it’s the continued currentness of front-end supplies, hope that beef demand returns by late July enticed by cheaper cutout values along with record beef packer profit margins that combine to make a bullish case.

But in hindsight, it appears that without any actual immediate fundamental support to back up this overdue technical bounce, the market does not appear to have enough going for it prior to next week’s holiday, to sustain an assault on the key overhead resistance area of $120.40 to $120.60. Instead, yesterday’s low of $114.57 and last week’s low of $113.40 are the key support points that the market may test next. Perhaps the market is going to ping pong along in this tight trading range rather than break out to the downside either. Suffice it to say, there’s plenty of frustration and confusion going around.

This week’s negotiated cash trade is likely to be light and occur at no better than steady money. One packer in the north needs cattle for next week but most are in good shape. Last week’s trade volume of almost 97k saw to that, with 23k of those bought with time on top of the 33k bought with time the prior week. Packers will be able to pull on July contracts for next week’s holiday-shortened kill and have plenty of formulas to choose from, especially in the south.

Boxes are fulfilling expectations of lower money, the choice at $236, down $16 since topping June 12. Cash fed cattle lost $15 in the same time frame, but packer margins were black then and have held on the decline. What won’t be known for a while is when, and at what price will demand be stimulated to return to beef. July is known for hots dogs and burgers and ice cream. Sometimes it can take until fall before demand really kicks in. The cutout can bottom anytime from late July to early October, with Q3 bottoms occurring 63% of the time and the balance in Q4.

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.

Consolidation

Posted on:  6/26/2017

By Cassie Fish, http://cassandrafish.com

Friday’s higher CME cattle futures close has set up an additional recovery today. The charts show this the fifth day of a consolidation as this technically oversold market attempts to catch its breath.

It is noteworthy, oversold or not, that Aug LC futures are trading within $4-5 of last week’s cash, which averaged just over $121. Also, it is impressive that Aug LC is gaining on all other contracts, even the Jun LC. The real question is whether the Aug LC is signaling a basis change, something not seen in a long while or if this is simply a head fake and the downtrend will resume.

Last week’s Aug LC high of $118.50 stands as major resistance just as last week’s low of $113.40 is support. The 10-day at $116.75 and last Wednesday’s high of $116.77 stand out as pivot area as well.

Friday’s CFTC Commitment of Trader’s report did not indicate any big purge of open interest whatsoever. And Friday’s volume was downright light. Those that were playing for big fund dump of longs and pressed the market near the lows will be required to have patience it seems.

Friday’s USDA Cattle-on-Feed report was pretty much as expected, though placements were a little heavier with Texas leading the other states, aggressively placing 650,000 head. Texas, for the first time since 2013 has more cattle on feed versus Nebraska on June 1. Nebraska marketed more cattle than any other state in May and their net cattle-on-feed number declined.

Futures are signaling that at least for today, they have compensated enough for the bearish fundamental news. Expectations of substantially lower boxed beef prices and modestly lower cash fed cattle prices this week are known by virtually all traders.

A hefty drop in the showlists this week ahead of next week’s July 4th holiday, may provide a little cash support, though packers don’t need to buy many. The closer the market trades to steady this week, the more hopes will rise that next week cash cattle prices could experience a minor recovery as packers gear up for a full week slaughter the week of July 10.

This week’s slaughter is estimated in a wide range, from 625k to as high as 638k. A repeat of last week’s 632k is most likely to occur, with a fed kill probably around 511k.

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.

One Direction

Posted on:  6/23/2017

By Cassie Fish, http://cassandrafish.com

If CME live cattle futures close lower today, it will be the 11th lower close in a row. Every few hours, futures seem to find an impetus for enough of an intra-day rally to relieve the oversold compression before working lower yet again. It has been an orderly and methodical down with relatively modest volume and only modest open interest declines.

Today’s rally inspiration can be tied to the news that the USDA has halted imports of fresh Brazilian beef, a process that had just opened last fall. The U.S. does not rely significantly on Brazil as a beef source and the type of beef imported goes into grinding operations, so it is not expected to have a material impact.

Aug LC will not only close lower on the week but will close the lowest since mid-April. A great number of long positions were rolled from Jun LC to Aug LC in May, meaning those positions are substantial losers.

Rather than driven primarily by fear, this break seems to draw in bottom pickers and naysayers. Bulls point to the fact that the cattle feeding industry is current and 2017 beef demand has been stellar, but those two facts are not enough to stay a seasonal summer decline.

Boxes have lost about $7 this week and will decline more than that next week and on into July. Packers look to have bought around 80k head this week, which appears to be plenty for them, but not quite enough for the cattle feeder, some of whom will carry cattle forward into next week. This fact is the single most concerning if it continues consistently in the coming months.

This week’s cash fed cattle price took out the important swing low made the week ended April 3, $124.33, the 5-Area average as reported by the USDA. The market has returned quickly to the $118-122 area where it stood in January and early February. Beyond that, it’s back to cash cattle prices not seen since Q4 2016.

Today’s USDA Cattle-on-Feed report is expected to confirm what we already know- the industry marketed fed cattle aggressively in May and placed a ton of cattle as well. It is unlikely there are any surprises here.

         Some Good News

Yesterday’s actual slaughter data for the week ended June 10 was better than expected, with total cattle slaughter at 635,985 head, the largest since October 2013 and the fed kill at 511,830 head, also the highest since 2013. It’s imperative that this trend continue in order for the industry to maintain currentness from now through the fall.

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 Resume Down; Uncertainty Mounts

Posted on:  6/22/2017

By Cassie Fish, http://cassandrafish.com

Most of the negotiated trade occurred yesterday, though there are some dribbles of trade continuing today as cheap as $120. Cash prices are $6-10 lower than a week ago and some cattle were left unsold. Even today there are rumors of trades as much as 2 weeks out $2-3 lower than this week. Whether true or not, the sense that the market is moving away from any offers is palpable.

The frustration that cash market sellers are experiencing is high. It is obvious packers are getting their needs met easily outside the negotiated pool of cattle and with boxed beef values finally in decline with plenty more to come, there is incentive only to buy a few and back up if a packer.

Margins are well over $200 per head this week and it appears that packers may be able to keep cattle costs declining faster than boxed prices- or that is the plan anyway. Once the choice cutout has sunk back into the $230s, it will be key to see whether cheaper prices bring in a round of buying. Do cheaper prices not trump the hot, slow days of July or does the cutout decline back to $220?

This week’s kill is expected to edge up over 630k with a shift on Saturday scheduled at a few more plants. A repeat of that slaughter level is expected to continue next week too, ahead of the holiday-shortened kill week after next.

Futures have concluded their short-term rally which began Tuesday late session and continued most of yesterday. But $6 was too close for comfort for Aug LC yesterday, and as cash prices eroded, the rally began to fail. Today’s gap-lower opening was all the evidence needed that, despite being oversold, futures are in trouble. Tuesday’s lows have been taken out, the charts look bearish and there is absolutely no reason to pick a bottom here.

Aug LC open interest dropped 2k yesterday, but that is a drop in the ocean of huge long fund ownership of Aug LC. Until traders get a look at the next Commitment of Trader’s report, it’s only a guess as to how much the funds have liquidated. Today’s action doesn’t ‘feel’ like a fund selling deluge at all, which if correct, does not bode well.

It’s more of the same and same is bearish.

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 Leaks Lower; Futures Stabilize

Posted on:  6/21/2017

By Cassie Fish, http://cassandrafish.com

It’s only Wednesday but negotiated fed cattle trade has been occurring since Monday. Trade has occurred from $124 to as low as $122 from the Corn Belt to Kansas- that’s $6-8 lower than a week ago.

It’s early of course, but at this juncture, it’s not a stretch to wonder whether showlists will get cleaned up or whether cattle will get carried forward into next week. Next week of course, will include a variety of negative fundamentals including: a long week buying for a short week, the last week to clean up June contracts, news of lower boxed beef prices and the aftermath of a likely bearish USDA Cattle-on-Feed report.

Boxes are just beginning their seasonal correction and at least 3 weeks of lower prices are anticipated. It will be second half of July before meaningful demand likely surfaces at lower money, as the first 3 weeks of July are the heart of the ‘dog days’.

Technically oversold CME cattle futures staged a nice rally yesterday and have held on to gains today, taking out yesterday’s high, but unable to get close to Monday’s high. To change this short-term technical correction into a rally with legs, eclipsing Monday’s high is required. Hopeful bulls as well as bears looking for a bigger rally to sell, are eyeing the gap left last Wednesday and the moving averages overhead. Though it’s hard to conceive what impetus it would take to give the market that kind of upward momentum.

Cattle futures only dropped 1,383 contracts on yesterday’s action, not much in the scheme of things and disappointing to those hoping to see some funds lighten up on longs.

It’s a long way until Friday’s close, but it certainly feels like this mid-week correction will ultimately give way to additional weakness as the market looks ahead to an increasingly bearish fundamental outlook.

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 the Skids

Posted On: 06/20/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures plunged to new lows for the move across the board today. Open interest did drop 3.3k yesterday, so perhaps some much anticipated long liquidation has begun in earnest, though most believe the funds have yet to begun to abandon ship.

The 100-day moving averages, left far behind for months are veering closer as the market plummets. Most active Aug LC’s 100-day is at $111.04, just above the $109.55 to $110.30 support area. It’s hard to conclude anything other than a fund-selling wash-out is still on tap for this market.

Fundamentally a few scattered bids have surfaced- $122 in the south and $195-198 dressed in the north, sharply below the $130 prices averaged last week.

It’s clear when taking a closer look at the USDA’s Committed and Delivered report released yesterday that even though packers only bought 88k negotiated cattle last week, their inventory position increased- confirming that formula yards have come into some big numbers. Grading is on the rise sharply too as well as weights, perhaps also an indication that formula cattle are not only more plentiful than in months but are less green than their negotiated counterparts. This pattern may persist the remainder of the summer.

Yesterday’s USDA Comprehensive Boxed Beef report had more good news in it for mid-June and at record prices than was expected. Sales for +22 days picked up, though not of course to the brisk level seen in the spring, and exports did too. Totals sales were so-so, likely indicating some resistance to the high wholesale prices but overall, the report wasn’t bad considering the price level.

The packer continues to benefit from both sides of his supply chain for another week. Hopefully profitable margins will result in more and more Saturday shifts being scheduled in the coming weeks and months.

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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