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.

Breakout to the Downside

Posted on:  6/19/2017

By Cassie Fish, http://cassandrafish.com

Cattle traders no longer must wait for confirmation that a full assault on the downside is underway. The May low for most active Aug LC has been taken out today, after a very early and short-lived modest rally.

The Commitment of Trader’s report, released Friday showed very little liquidation has taken place yet, even though Aug LC had already declined $7 from the top, as of last Tuesday, the timeframe of the report’s data. This lack of liquidation thus far gives an ominous sense of what’s to come as the market decline continues. Short hedgers will be unlikely to take the other side of the selling when the funds do decide to abandon longs, begging the question, who will take the other side and how far must market decline to find a willing buyer?

The fundamental outlook is no secret as boxed beef and negotiated fed cattle prices are both expected to be lower this week and next week as well. Clean up of feedyard showlists wasn’t great last week and showlists are expected to grow going forward.

Last week’s kill came in above most expectations at 628k and this week has a good chance to top 630k for the first time since 2013. The cattle are there, the margins are there and June is typically a month that sees some of the largest cattle slaughters of any time of any year.

Technically, futures are headed very likely back to where the historic rally began in late April. Once there, it would seem reasonable that the market will take a pause. Technical indicators already show the market becoming oversold, but the with the possibility of massive fund selling, oversold is not a good enough reason to cover shorts, let alone go long.

Many chartists see a classic double top formation with a measurement that will take Aug LC under $110.

While there is no argument that the full-blown summer seasonal downtrend has hit high gear, the broader question of just how low the market declines in Q3 is on most market watchers’ minds. The good news, is the industry is vastly more current than one year ago.

If there was one piece of data throughout the entire supply chain that is vital to monitor going forward it is the fed kill level. It is imperative the fed kill push to new highs in 2017 and maintain itself above 500k per week through the next several weeks, to maintain currentness of fed cattle marketings.

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 Spectacular Story of Jun LC

Posted on:  6/16/2017

By Cassie Fish, http://cassandrafish.com

In only 5 days, Jun LC has dropped $10, down about $12 from last Friday’s close. Jun lost half in a week of what it gained in April, the top which culminated May 4. Last week’s failed attempt to equal the May high ended with an outside day and lower close. Since then, it has been lower with a vengeance. To codify the action, Jun gapped lower Wednesday, in the same area the market had gapped higher on the early June rally. The chart has the look of a classic double top with $120.57 offering the last bastion of support. To add to the interest, there is a spot gap between $120.47 and $120.65 left by Apr LC on its rapid rise.

If Jun LC, a contract month that pretty much all had counted out from the start, decides to return to the origin of the big spring rally in its remaining two weeks, it is headed back to the $115 area where the 100-day moving average can be found. That would be nearly $20 off the high, and would make Jun LC the contract that contained the most surprised of any in 2017.

Jun LC, pretty much dismissed by now, encompassed it all. The underestimation of 2017 beef demand. The temporary choice fed cattle supply shortage caused by multiple weeks of huge fed kills. And the turning of the page from not enough supply to plenty to be had.

With two weeks yet to trade and a Jun LC delivery calendar that stretches into mid-July, it seems highly unlikely Jun LC will stem the tide and hold the $120 level. Jun is losing on the spreads, with the Jun/Aug into near $4 from near $7.50, is a collapse to $2 by June 30 next?

Aug LC on back and Feeder futures are trading to a different tune and ignoring the wounded Jun LC, spending much of today higher again today with plenty of traders are wondering if the bottom end of the trading range is going to hold, at least this go around, as the market has become oversold.

The likelihood that cash fed cattle and boxed beef prices will decline in July is high- even though cash fed cattle prices have already given up as much as $8-9 this week from last week. Packers won’t need to buy many next week even with slightly larger kills planned. The need to sell will outstrip the need to buy for the foreseeable future.

Which brings the conversation around to basis. If cash is $124-126 next week, will Aug LC be comfortable $6-8 back? Or is the penetration of the major support point, $116.77 inevitable? If the basis does narrow, does that begin to disincentive cattle feeders to as aggressively sell cattle? Could that compound a bearish fundamental scenario as the industry heads into increasing market-ready fed cattle supplies for Q3?

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.

Two-Sided Thursday

Posted on:  6/15/2017

By Cassie Fish, http://cassandrafish.com

After yesterday’s rout, CME cattle futures have come up for air today and are hanging out in green territory, once again attempting to alleviate grossly oversold intra-day technical indicators.

Cash values have continued to slip and live trades have been rumored at $126-127 and dressed at $205, down from even yesterday let alone last week. Last week feels like it was last year, so quickly and violently have prices collapsed in both futures and the negotiated cash trade.

Only boxed beef cutout values remain impervious to the fray, sustaining near the highest prices of the year which happen to be the highest prices for this week in June in history. Retailers have responded and May retail beef prices have pushed back over $6 per pound, a level that was maintained through 2015 and has not been seen since July 2016. It is difficult to interpret this data as anything but negative as the industry heads into greater fed cattle supplies coupled with heat of the summer. Packer margins ought to push out to new highs next week over $200 per head.

Cattle futures have returned to the bottom of the trading range established in May. The May lows are technically critical and if penetrated will set in motion a technical wash-out. Open interest did decline yesterday on the break, but there is a sense that the potential flood gates of liquidation will be opened with a close below $116.77 in Aug LC. If that occurs by month end, it will establish a monthly key reversal, since Aug LC made a life of contract high last week. That is something not seen often.

There also seems to be a sense of disbelief circulating that the market can’t really be in this much peril when the front-end fed cattle supply is current. Unfortunately, the willingness of packers to allow cattle feeders to effortlessly pull cattle forward for months no longer exists. The long-awaited increase in market-ready fed cattle supplies is upon the cattle feeding industry and prices must ultimately adjust to once again incentivize bigger kills and hopefully, by late summer, another round of aggressive retail beef featuring.

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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