Futures Lower; Cash Too

Posted on:  5/24/2017

By Cassie Fish, http://cassandrafish.com

At least a piece of this week’s cash fed cattle trade was established on the Fed Cattle Exchange this morning between $132 and $133 live, averaging about $2 under last week’s average over $134. Soon after the FCE auction concluded, early bids of $130 in the south were upped to $131 then $132 with a little trade in Kansas at that price level. This week’s drop in price isn’t really a surprise for most market watchers.

Cattle feeders in some areas are exhibiting more backbone this week, pricing cattle in the north as high as $215-216 in eastern Nebraska and at various prices above $210 in Iowa. The best bid in the north dressed has been $208 with a possible call-in at $210 for the right kind.

Cattle feeders’ growing bullishness has also been evident in feeder cattle sales in the last week, as some of the highest breakevens in many months are being placed against Q4.

CME cattle futures however, have been down day, even gapping lower on the opening in Aug FC. Perhaps it is the talk the correction in beef 50s is underway and will be very dramatic. With the intra-day, technical signals reaching an overbought status thanks to the early week rally, todays down has been big but has still contained intra-day rallies.

Back below the 10-day moving average, futures now look as likely to test the recent lows as they did the opposite on Monday. Jun LC, which has been weak relative to all other months until today, did check its recent low today, but held on then rallied 140 points. Very choppy, swingy trade is likely to continue in futures, thanks to the discount to cash, a jangle of conflicting technical indicators and sporadic in-flows of spec money.

For packers, their immediate margins are good and the knowledge that boxes will be significantly lower in a month than today isn’t an issue as long as they keep stepping fed cattle prices down. With the choice/select spread record wide, there is incentive to buy the top-tier cattle too. So even though this week isn’t expected to see aggressive competition among all four major packers, there is a need to buy the good ones by at least a couple of participants.

Retail features today offered beef, pork and chicken with a heavy emphasis on items for the grill. A couple of retailers are offering 80/20 ground beef at $1.88 per pound, which in spot would be a ‘lost leader’ but will generate store traffic. There was also a lot ground beef priced in the $2.89 per pound range and plenty of pork and chicken under $2 per pound. Clearance over the 3-day weekend is expected to be good with lots of value to the consumer.

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.

Transition Time

By Cassie Fish, http://cassandrafish.com

It’s been a positive year for the cattle and beef industry thus far. So many of the difficulties experienced in 2015 and 2016 were left behind as the beef prices finally reached a cheap enough level to find demand.

Rebuilding demand created one of the biggest rallies to ever occur in a six-month time frame in cattle market history. That rally concluded this month and the market has moved into a trading range which will likely persist for weeks. This month’s futures high and low may confine market action for some time to come.

The discounted futures market and current front-end market ready cattle supplies will provide support while the seasonal will limit the upside. Packers will do their best to step cash cattle prices down until front-end supplies become large enough to put the real pressure on. Small downward adjustments have already been made in slaughter and the  slaughter level surge over the 5-year average since February has subsided.

But it is the potential for erosion of beef demand this summer that is the most troubling for this market. Demand has declined the higher prices have climbed, some cuts to record highs.

Gone is the interest in booking meat out-front. Even export demand has declined. The record high rib prices being traded in the spot window have pushed margins for end users into the red. Several other items like the short plate and flank have rallied sharply as well along with grinds.

Just as this market gained currentness incrementally and benefited the cattle feeder with additional bargaining leverage when negotiating with packers, the opposite can incrementally occur. Though it will be the degree of which that happens that will be most important and is still to be determined. Placements against August and September have been substantial and the need for the biggest kills since 2013 and bigger beef movement will become paramount at that time.

This makes slaughter levels and beef demand over the next 2-3 months the two most critical fundamental factors to watch. Regaining access to China will not be able to offset an extended loss of widespread, affordable beef features at the retail level to consumers.

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:  5/22/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures have started the week with a brisk rally, with most active Aug taking its most recent high made a week ago today, powered by technical signals that have turned up, signaling the cattle market is set to take back lost ground.

Commodity traders are getting positive signals from all around- crude, grains, oilseeds, gold, the CRB index- all feel-good positive today.

News about the next step in early June to get China on-line for beef exports from the U.S. circulated as well, bolstering enthusiasm for futures further.

News lows in carcass weights last week and expectations that weights will hover in the low 830s for a month before increasing seasonally through summer and fall are viewed as another positive.

This weekend’s ‘big beef’ holiday which kicks off cookout season, Memorial Day weekend, fuels expectations for fill-in buying being brisk for another 3-4 weeks. End users are being forced to pay record high rib prices for spot purchases or do without and these sales are holding the cutout together longer than market watchers had expected.

Showlists for this week dropped big in Kansas and Texas, heightening expectations that maybe cash live prices this week can hold on to steady, despite the fact it is a long week buying for a short slaughter week for packers and next week, June forward contracts can be pulled.

In light of all this “news” futures are eager to reclaim ground quickly amid hope that this summer’s broader seasonal down turn is a mild one.

This week’s kill is expected to be 600-605k on the heels of last week’s 602k, as packers move forward with very modest production schedule, aware that demand for all items is not equal and select product especially is under pressure. Packers will not let their margin get away from them going forward.

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.

Downtrend Abated

Posted On:  05/19/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures made their high for the week on Monday and their low for the week on Tuesday and have spent the week since clawing back to the 10-day moving average. Most active Aug, which has continued to grow in open interest this week, is the most buoyant, regaining ground on the deferred contracts as well as spot Jun.

There seems to be no fundamental reason for Aug LC’s strength and at only $3 back of Jun and premium to Oct and Dec, it is a bit of mystery why Aug is favored as much as it is. Of course, the managed fund money is concentrated there as well as many short legs of spreads. But heavy placements against August and September the last several weeks insure there will be a significant increase in fed cattle supplies during that timeframe.

Beef demand seasonally slows in July and August and carcass weights seasonally increase, both additional factors indicating fed cattle prices will be well into their seasonal decline by then.

Logic says that Jun LC, not Aug LC, will benefit from cash cattle prices declining slowly rather than rapidly over the next 6 weeks because of the front-end currentness in feedyards. But money flow appears to be having its own influence. Some may want to give the anticipation of U.S. beef exports opening up to China in July credit for Aug LC strength, but expectations are that China will require various sorts of ‘verifications’ on any exports accepted, which may limit volume. The China impact is between perception and reality right now.

There were issues at a couple of plants yesterday reducing volume but tomorrow’s kill will be sizeable. Packers are in midst of filling orders booked weeks ago. Kill will be around 606-612k. Boxes next week will print lower, the only thing in question is the how much and how fast will they go down. That varies depending on who you ask.

Next week packers will be buying for a short kill week, but given that this week’s trade volume wasn’t huge, many will be looking for a steady go after two weeks of decline.

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.

Country Trade Starts

Posted on:  5/18/2017

By Cassie Fish, http://cassandrafish.com

This week’s negotiated cash trade has picked up today in the south, with a little trade at $133, followed by a $133.50 bid- then $134- all within the range of yesterday’s FCE auction. The CME cattle futures rally the last couple of days had given some hope that $135 and with three packers bidding at $134, that may come to pass.

Trade volume in the north this week has been greater and between $212 to $215 and bids have surfaced at $212 by two majors. No doubt that basis continues to be a powerful incentive and the balancing act between selling cattle or holding out for more money continues.

Packers are intent on stepping the cash cattle market down but are keenly aware that carcass weights and a very current front-end of market-ready fed cattle supplies make their task not without challenge. Packers know they must continue to replenish inventory each week in order to maintain leverage required for an orderly decline. The tug of the basis and bearish market psychology will help their cause but it will be 4-6 weeks before front-end fed cattle supplies ease enough to make a material difference in week-to-week purchases.

The tail-end of all those big sold-aheads are in shipment mode for another 3-4 weeks and packers are keen to fill orders and ring revenues.

But as is the way of this business, the demand picture beyond mid-June is dramatically different than that of the last several months also, and packers are re-considering June slaughter schedules, dialing them back lightly, to attempt to sync up the still tight fed cattle supplies with slowing out-front demand.

Packer margins are black, though not as black as spot values would indicate, since only about 25-30% of beef traded is in the spot market.

CME cattle futures have spent the day between Tuesday’s low and Wednesday’s high, making it clear that a move below or above either one would spark some follow-through. Futures are not grossly oversold yet, but have broken enough that shorts are nervous and are banking some profits. The more significant overhead resistance resides at the 10-day moving average and Monday’s high.
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.

Stabilizing

Posted on:  5/17/2017

By Cassie Fish, http://cassandrafish.com

Both cash and futures have found a resting spot for a minute, the Fed Cattle Exchange trade from $130 to $135.75 this morning compared to last week’s $137 5-area average and futures posting a modest rally. Even though cash traded lower, for some prices were better than feared and a welcome sign packers are willing to take on additional inventory.

Spot Jun LC has dropped a whopping $14 in less than 2 weeks, and seems to be indicating by today’s action that it’s comfortable with about a $10 basis on average this third week in May. With this week’s cash likely established within the range of today’s internet auction prices, further downside at this time seems unlikely.

For those who are wondering what it would take to alter the downtrend, a close above the China rally high last Friday would do the trick. Right now futures are below their 10-day moving average and way above the 40-day, which technicians expect to be visited sometime in the coming weeks. Yesterday, Jun LC traded down into a gap on the spot chart left by Apr LC on its way up between $120.47 and 120.65, making that as good a spot as any to find some footing and initiate a rally to alleviate some of the shorter-term technical oversold indicators.

The cutout printed lower this morning in what is expected to be a series of lower quotes and the choice/select spread is pushed out to $26.34 with a trip to $30 not out of the question in some folks’ minds. This a reminder that carcass weights and grading are still falling and the seasonal rise of both in June will occur slower than normal most likely. This ought to provide some underlying support and could result in occurrence of a two-tiered market, something not seen in years, with better cattle capturing a premium consistently.

Regional packers have bid some $215 today in the Corn Belt and there were a few cattle that traded that way yesterday. A major packer bid $208 in the same area. In the south, $133 was bid yesterday in Kansas by a major, consistent with where the FCE traded today.
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.

Volatility Begets Volatility

Posted on:  5/16/2017

By Cassie Fish, http://cassandrafish.com

The dramatic turn of events the last 2 weeks have left many in the beef industry a bit shell shocked. The velocity of the rally took most by surprise and the steep and relentless nature of the current cash cattle and futures break is having a similar effect. Friday’s ‘gift’ rally now seems like a dream.

End users haven’t been let out of the trap yet, as the choice cutout value was pressed to new highs yet again today, ringing the bell at $250. Only those with no other choice are buying any product now as all are aware prices will come tumbling down soon.

It will be a long time until the cutout bottoms following a rammed and jammed rally like this one that will make the Q2 top. The rib primal and beef 50s have reached their highest prices ever in history. Talk on the street is that pork business is booming and beef will pay the price dearly this summer. Beef’s turn in the “preferred” seat is over for now and it could prove to be a long, long summer.

About two-thirds of the time the cutout bottoms in Q3 the rest of the time in Q4. Since people tend to have short memories, it is easy to recall the enormous, record-making cutout breaks of 2015 and 2016 that took until Q4 to end.

Today’s lighter carcass weights and current market-ready fed cattle supplies ought to provide some positive balance to the seasonal decline in cattle and beef prices now upon this market. This makes slaughter levels and carcass weights the two most important fundamental factors to watch carefully this summer, to attempt to gauge the degree and duration of the decline.

Going forward, the market will be battling the loss of the large sold-ahead position that laid the groundwork for the great rally that just expired. Instead, the wholesale beef market will be forced to clear its volume more in the spot and formula market and because prices are so high, volumes will be constricted. This has been very evident in the USDA Comprehensive Boxed Beef report issued the past two Mondays.

It is stating the obvious that it will take cheaper prices to find beef demand again. How long and how low are unanswerable today. Cattle feeders will chase basis to stay in the front of the decline and the live cattle futures market, burdened with a record long fund position, will lead the parade lower.

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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