All About the Slaughter

By Cassie Fish, http://cassandrafish.com

As of last Saturday, year-to-date, total federally inspected cattle slaughter exceeded the same time frame for 2016 by 1.358 million head. Despite this increase in supply, prices bottomed at a higher level than a year ago in Q3, thanks to demand and one more key element- currentness.

Though there are a variety of Q4 slaughter projections floating around, at least one trusted source who’s been accurate this year, Daniel Bluntzer of NFC Capital Markets estimates the fed kill will drop well below 496,000 head the rest of 2017 because fed cattle supplies are not large enough to continue to support a bigger kill. The last time the industry killed less than 496k fed cattle in one week was week ended April 14, 2017.

The entire supply chain has gotten accustomed to big kills. Processing and absorbing the large production has been especially profitable for packers and end users. September saw the largest fed kills since 2013, posting a 521k and a 523k. But given available fed cattle supplies for the rest of the year, the kill must seasonally drop, or the industry could become even more current heading into year’s end.

Weights are well below last year as well, confirming the notion the cattle feeding industry is current. For the week ended Oct 7, steer carcasses weights were up 1 pound from the prior week at 895 pounds and down 16 pounds year over year. The actual fed kill for the same week was just under 510k.

So as each week goes by going forward, there will be more talk of Saturday kills being taken out and maintenance being performed. But, packer margins have been record wide and are still quite large historically, around $100 per head or more. Fall is typically a time of packer margin contraction, when cash cattle prices rise a little quicker than boxed beef values. Packers may not admit it, but they are seeing less cattle available for slaughter than in August and September.

Cattle feeders are understandably nervous. Cash prices are currently near breakevens, all remember last year’s wreck, and premium futures have risen concerns about cattle being held too.

But based on slaughter and carcass data, there is no indication the market has stubbed its toe fundamentally. To the contrary, the cattle feeding industry is heading into the final weeks of 2017 in solid shape and a modest rise in cash cattle prices appears likely as packers compete for tighter supplies while stepping down kills and raising boxed beef values in November. There may be some cut items that need to be cleaned up immediately, but boxed beef values won’t see their high until later this 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.

Real or Imagined

By Cassie Fish, http://cassandrafish.com

Despite the cattle and beef market having carved out a solid fundamental base in August and September, CME cattle futures, to the delight of some big bearish futures traders, are selling off today, furthering a technical correction begun last week.

Because of the loopholes and weaknesses written into the antiquated CME live cattle contract decades ago, games rather than price discovery sometimes prevail.

This month, someone reclaimed his deliveries and picked up $2 per cwt. Someone, perhaps the same trader, tendered the same number at the same delivery point again yesterday afternoon. Round and round, we go. The average negotiated cash price last week was $111. Oct LC has dipped below $110 today, thanks to the deliveries which have sent longs scampering for the exit, exerting selling pressure on futures.

While at the same time this morning, a fat cattle auction in Tama, Iowa sees deliverable cattle bring $112.85, sold to a major packer. Believe it not, there are way more fat cattle auctioned off each week in places like Yankton, South Dakota, Worthing, South Dakota, Tama, Iowa, Decorah, Iowa and many others than the on-line auction that many watch has ever sold. Yet this price discovery method gets little attention, even though major packers buy inventory there each week.

While on the subject of real or imagined, USDA reported 500 head yesterday in Iowa at $108, however those cattle were missing from this morning’s report entirely. Where did they go? Instead, 80 head dressed traded at $172 compared to last week’s $175 were the only sales listed.

Additional bearish rhetoric, of which there is no short supply, includes insistence that cattle have been held off the market and carcass weights will suddenly explode soon.

Packers, who’s record margins have been contracting seasonally, bid $109 today, hoping the negative action will jar cattle loose. When futures started to rally, three packers went to $110, $1 lower than last week and a sign that packers need to replenish inventory.

Some are trying to spread talk of sharply lower boxed prices in the coming couple of weeks since an immediate back log on a few items has occurred. A set back of a $2-3 might occur but anything more would be counter seasonal.

CME cattle futures have rallied back some from earlier morning losses, but bears are dug in and betting on a trip back to the Q3 lows.

When you throw into the mix the gyrations of intra-day algorithmic ‘computerized’ cattle traders, attempting to day trade for profits, fund roll-over, position limit come-down- the truth is the cattle futures market experiences multiple price movements frequently that are completely unrelated to fundamentals.

All the more reason to focus on the facts and the broader market direction- and less on unexplainable intra-day price movements and the exploitation of weakness in the contract itself.

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.

A Comfortable New Level

By Cassie Fish, http://cassandrafish.com

Both Oct LC and fed cattle prices are now established at a new price level. One week ago, Oct LC broke out first and is now consolidating between $111 and $114 after spending most of August and all of September carving out a seasonal low. Last week, fed cattle prices averaged $111, also getting above the $110 area and now appear ready to seasonally follow Oct futures and work their way to $115-$117 over the coming several weeks.

The cutout too is expected to continue to slowly gain value seasonally, reaching a Q4 high ranging anywhere from $205 to $215, depending on demand (choice printing at $198.81 yesterday). The rally will be fueled by the holiday rib which tops typically in early December. A few more scheduled plant maintenances over the next 3 weeks will take a little bit of production away and give boxes a little boost as well.

Dodging physical deliveries (many reclaimed) and pressured by long liquidation, today Oct is hugging it’s 10 and 100-day moving averages and is gaining on the remaining contracts once again. Not even a full dollar above last week’s cash market high, but with no ‘takers’, a stubborn short may pelt the spot contract yet again, to see if another $2 per cwt of free money can be his.

The deferred futures contracts are in pause mode, having risen over $10 or more in most cases since bottoming in August. With the potential for a bearish placement number in Friday’s Cattle-on-Feed report, action there has flattened out, leaving last week’s highs to stand for now.

The kill this week is estimated in the 630k-635k range compared to 622k last week. This week’s cash trade, on the heels of last week’s negotiated trade of 111k, which includes 12.3k with time, looks to be fully steady if not higher. Market-ready fed cattle supplies in the north continue to tighten.

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.

Monday Consolidation

By Cassie Fish, http://cassandrafish.com

CME cattle futures continue to hold together today, stabilized by cash trading higher last week. Last week’s smaller-then-expected, (despite maintenance performed at some plants) slaughter of 622k will likely give cutout values a boost while this week’s kill is expected to edge back to 630-640k. And even if cash cattle trade steady this week on the heels of last week’s gains, bearish fundamental facts are in short supply, even though bearish rhetoric is not.

Indeed, packers ended up paying up for cattle on Thursday, and negotiated prices topped at $111.50, $2 higher. Clean up at the feedyard level was good and the cash market appears to be in a position to work sideways to higher seasonally over the next several weeks. Some bears continue to insist there are too many ‘big’ cattle, but there is no evidence of any problems of this nature- unlike the last two falls.

A few bears are doing their best to continue to pepper Oct LC with deliveries and liquidation pressure due to a close up, oldest long date is keeping Oct on the defensive today despite stronger cash. But the rest of the cattle contract months are demonstrating general stability though they are somewhat overbought technically. Some are calling for another big setback in futures but choppy consolidation seems more likely given the calendar and the fundamentals.

Friday’s USDA Cattle-on-Feed report will confirm excellent marketings occurred in September as well as larger placements than a year ago. The primary debate here is just how big placements come in and whether the deferred live cattle futures contracts will tumble a week from today. Managed funds appear to have a substantial long ownership in 2018 live cattle futures contracts which, from Apr LC forward, all made life-of-contract highs last week.

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 Big Kill as Carcass Weights Drop

By Cassie Fish, http://cassandrafish.com

The release of the actual slaughter data for week ended September 30 brought news of a new high for fed slaughter in 2017. Fed steer and heifer kill for that week totaled 523k, 2k head above the earlier high for the year made in September also and pushing packer plant capacity utilization to new highs.

The multiple +500 head fed kills have apparently managed to keep cattle marketings more current than many suspect, as steer carcass weights for that same week dropped 3 pounds from the prior week to 894 pounds, 15 pounds under a year ago. Both fundamental facts are constructive and give additional credence that the 2017 seasonal lows were made in Q3. So far, the big premium being held out as a carrot by Dec LC has not, as of yet, derailed cattle marketings or currentness.

         This Week’s Negotiated Trade

Packers, reluctant to give up margin and faced with slippage in boxed beef values, have renewed bids steady with yesterday but appear content to wait until Friday afternoon to commence trade. Deliveries against the Oct LC contract has bears in hope futures will break and swing bargaining power to the buyer, allowing packers to fill up at no higher than steady money to last week.

Reports of tighter numbers in the north continue to surface and even though this week’s fed kill will be only in the 510k area, it’s getting more challenging to cover a kill this size with ease, week after week. This is considered a normal seasonal trend, unlike the prior 3 consecutive years- none of which were considered normal by any definition.

So regardless of tactics, fed cattle prices this week look to be no worse than steady and very well may trade $1-2 higher.

         Deliveries Continue

Despite the solid fundamental news, bears caught short in the hole in Oct LC (and who also got caught in a basis shift) are peppering the Oct LC spot contract with deliveries. There have been 16 so far and another 5 are rumored to be tendered this afternoon. Oct is losing on the spreads today as the oldest long date moves forward and longs decide to move aside rather than risk getting caught.

I’m taking a publishing break tomorrow and will resume the blog Monday. Happy trading.

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.