Fear and Hope

By Cassie Fish, http://cassandrafish.com

Last week’s fed cattle market took a huge dive, losing $5 for the bulk of the trade and even an extra $1-2 late Friday. The last time cash averaged near $110 was the first week of December 2016. The cutout last week averaged $8 higher than that same week in 2016, both time frames very profitable for beef packers.

It is the cattle feeders’ fear that is taking the market lower so quickly. Market-ready fed cattle supplies are their largest since pre-2014 and cattle feeders are chasing the last bit of equity left. Everyone seems to be trying to get out in front of this market as quickly as possible and no one seems to have thoughts of much else- other than replacements are still too high and not all that easy to come by.

Packers need to do little more than buy and back up bids and then repeat. The beneficiary is the end user who is scooping up wholesale beef bargains right and left, as volume picked up last week. Ample supplies are expected to persist at least another 4 weeks and sellers in the Corn Belt have been especially quick on the trigger.

The decline in cash prices has exceeded 20 percent and many are speculating an extreme 30 percent move is on tap, taking prices to $100-$105. Last week’s action had the ear marks of a race to the bottom- no longer a gradual, methodical decline.

As seasoned traders know, the quicker the pace and the more extreme the action, the greater need for caution. Every washout culminates the same at some point.

Most active Oct LC dropped 495 points last week, drawing a very big technical line in the sand in the $104.75-105.00 area. Futures are hinting loudly that a basis move could be next, only adding to the frustrations of cattle feeders.

Friday’s Commitment of Traders report, analyzing trade as of the close Tuesday, August 15, showed large commercials continuing to exit shorts and managed funds adding to theirs. OI actually went up on Friday, led by Feb LC, followed by Dec LC as those with deep pockets and a longer view than the immediate, purchased contracts that will likely be worth more in Q4.

But that longer-range view of improving Q4 and Q1 prices has been eclipsed for now for many by the fear of what might occur over the next 4-6 weeks, fueled by memories of last year’s wreck. This will be true until one day when all of a sudden, it is not. Leaving the elusive ‘when’ unpredictable for now.

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.

Technical Difficulties & Publishing Break

Our sincere apologies for not posting the last couple of days due to technical difficulties.  Thank you for your patience.
Today is a scheduled publishing break.  We will publish the next post on Monday, 08/21.  Have a great weekend!
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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.

 

 

Bad News Priced?

By Cassie Fish, http://cassandrafish.com

Perhaps CME live cattle futures have priced the bad news for now. In early trade, most active Oct LC traded down to $105.75, not far from key long-term support of $105 only to rally a fast 165 points. Not only is $105 big support, it has been the downside technical objective of many since the market topped in June. Now, the market is trading back above $107 but has yet to fully penetrate the key overhead resistance of $107.97 to $108.60.Futures are ignoring weaker auction barn sales in the Midwest today, yesterday’s Iowa trade of $110 with time and today’s Texas bids of $110, a harsh $5 lower than last weeks average negotiated fed cattle price of $115.17.

Futures are significantly oversold, a ton of open interest has come out of the market for a month and the selling appears to have exhausted itself for now. If the board holds, closes well and builds on today’s action, then another short-term low is likely in.

This week’s kill may top last week’s 641k, which was the largest of 2017, as the market absorbs its large supply into the pipeline. Last week’s USDA Comprehensive Boxed Beef report showed the third largest volume of 2017 and a pick-up in long-term forward sales as value attracts end users, seemingly a little early this year.

It is not new news to this market that fed cattle supplies are their largest of the year or that packer has the upper hand, which is why Aug LC traded $7 under last week’s cash average. But the gate rush fueled by fear inspiring cattle feeders to avoid a fall wreck by aggressively selling cattle, will go a long way in shortening the “wall” of cattle. August weakness may turn out to be a worthy sacrifice and go a long way to cementing a Q3 low this year.

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.

Leaking Lower

By Cassie Fish, http://cassandrafish.com

The malaise that dominated the cattle market last week is still casting its shadow today. After a couple of early attempts at green on the day, the first four live cattle futures contracts have slowly slid to new lows for the move.

Cattle traders remember well the fall bear debacles of the last two years and the fact that the market is oversold and discount to the cash fed cattle market are neither good enough reasons to buy futures. If a trader can’t sell it here, the safe move is to retreat to the sidelines and wait.

Last Friday’s Commitment of Traders report did give a glimpse into who did buy and sell the market as of last Tuesday’s close. Commercials covered a ton of shorts while managed funds liquidated longs and began to build a short position. Of course overall, total open interest keeps falling along with the market, with most active Oct now down almost 20k in 6 trading days.

It’ll be a couple of weeks before we get the final numbers but last week’s estimated slaughter and beef production were the largest of 2017, clocking in at 641k kill and the remainder of August are expected to see similar production. Last week’s +125k head negotiated trade volume at lower money is in the cue. August may well end up with the largest beef production month potentially of any August since 2011 and this large supply will keep a lid on cutout prices as this large supply makes its way through the system to the consumer.

Retail beef prices will likely become even more competitive. Last August, average retail beef prices had just dipped under $6 per pound for the first time in months and it was October before they really dropped hard. So as bearish as some are, cheaper retail prices in 2017 will keep product moving without drastically lower wholesale prices being necessary.

In short, last year the market had to seek a price level low enough to clear the backlog in fed cattle supplies and reignite beef demand- and it did. This year, fed cattle marketings are current and wholesale boxed beef prices are attractive to end users who have continued to feature beef much of this year and packer 2017 margins are exceptionally profitable. Perhaps the need for sharply lower prices this fall is not necessary, regardless of the fear that they are.

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.

Enough for Now

By Cassie Fish, http://cassandrafish.com

The deluge of selling which took 21,501 contracts out of CME live cattle futures open interest this week appears to be over. The charts have been damaged and fear factor has increased. Today’s quietly higher trade has done little to calm fears. Traders are wondering, with the market now oversold, if a recovery is on deck or whether next week will bring another collapse.

There is no argument that immediate fed cattle supplies are the largest of this year and for several Augusts. And with big supply comes price pressure. Though this does not explain the waves of selling that swamped the futures market this week, that came on the heels of last week’s very stable cash market action.

In this day and age of computerized trading, the who and the why remain a mystery to all but those clicking the mouse. There have been rumors and speculation of course, but the damage is done. With fundamental bearish analysis itself in large supply, the action can be explained to some traders’ satisfaction. Still, it is odd that the flood gates opened on Monday and the spigot ran wide open until yesterday.

It appears there was a large transfer of ownership from cattle feeder to packer this week at prices that significantly enhanced packer margins. This ought to support big kills as some plants are now buying for late August and early September. So maybe the break in futures, that inspired cattle feeders to sell aggressively, will have an indirect positive impact by ensuring kills big enough to maintain currentness. Shoving this much beef through the pipeline will keep a lid on boxed beef prices but that is really of little consequence to the packer who is focused on volume and sales realizations.

One of the chief lessons from Q4 2016 was when the pipeline expands to move more beef, any supply constriction that follows (remember the big production drop from Q4 to Q1 2017), a price increase is logical.

The key for the remaining 2017 cattle market is for the cattle feeding industry to maintain currentness through the peak supply of the next 4-6 weeks. That sets up the potential for a modest Q4 price recovery, assuming the excellent domestic and global protein demand continues.

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.