Stormy

Posted on:  01/17/2017

By Cassie Fish, http://cassandrafish.com

In the country, a well-publicized ice storm reduced yesterday’s cattle slaughter and will impact today’s as well. The USDA reported a 72k head kill and there’s talk it could be revised down. Today’s will be reduced too and for the week, estimates range from 570k-580k.

The impact of the reduced kill is helping boxed beef values cement their low even though big spot volume last week along with brisk 22+ day booking combined for the best boxed beef volume traded since before the holidays, surpassing last year’s trade volume and nearing the 5-year average volume. Choice boxed beef prices are expected to appreciate this week at least $2-3.

Friday’s pre-storm negotiated fed cattle trade ended up at a new high for the move, mostly at $119 with decent volume of 91,499 head, 77k for 1-14-day delivery. That same USDA report showed a big number of cattle delivered to the packer last week from all sources- formulas, contracts and negotiated- obviously needed to supply last week’s enormous 609k kill.

Just how big was last week’s kill? Well it was the largest “first full kill week of January” since 2011 and the largest since 2013 for the second week of January, ignoring holidays. The take away simply that packing industry continues to run hard.

This week packer margins are likely near a scratch to a little red in some plants. Though this week’s reduced kill and higher cutout may boost margins fully back to profitable. It remains to see what kind of wholesale beef business volume occurs this week though talk is so far, it’s been a little slow.

Cash fed cattle prices this week are expected to be fully steady to possibly $1-2 higher, depending partly on plans for this Saturday’s kill as well as next week’s slaughter. Showlists came in showing a significant decline this week and the tough weather has impacted cattle to varying degrees.

The storm in the real world has been modestly echoed today in CME cattle futures, with prices gapping higher in some cases and pushing into new highs for the move in others. Open interest increased yet again last Friday and Jun LC now exceeds spot Feb LC in OI. Jun LC made a new high for the move Friday and followed through impressively today, reaching the highest level since July 2016 and trading into a gap area left back in June. The significantly discounted deferred live cattle futures aren’t the only market ignoring long-term bearish fundamentals as front month corn futures today traded their highest on a spot basis since July 2016.

Friday’s Commitment of Traders’ report confirmed continued buying by managed funds and index funds and selling by commercials as short hedgers continue to lay off risk. Money flow into commodities continues to make itself noticed.
Copyright © 2016 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.

Quite a Set Up

Posted on:  01/13/2017

By Cassie Fish, http://cassandrafish.com

A wild futures trading week, a potentially crippling weekend ice storm and packers that need inventory are culminating on this Friday ahead of a 3-day weekend.

After a two-day ugly break, CME cattle futures have clawed back to green today and are holding above last week’s highs. Whether the high on Wednesday was a top- or not is still in question and today’s action so far has provided little clarity. In Feb LC, Wednesday top was $119.70, support is $114 and broad resistance exists from $120 to $125.

The enormous ice storm which is predicted to stretch from the Texas panhandle up through Kansas and Nebraska where multiple packing plants are located will impact Monday’s kill which could dip under 100,000 head. This week’s kill, on the other hand, will be a monster, coming in at 605-609k.

Boxed beef prices were expected to find a low next week after a horrendous break, even before the smaller kill due to the ice storm. But the damage to packer margins will be done as they see their first red ink in some if not all plants since Q1 2016.

The cash fed cattle market is an obvious stand-off, with packers resisting to pay steady, let alone higher. Packers had limited success buying a few cattle steady to cheaper the last couple of days aided by the sharp futures market sell off. But today’s green futures and the packers need to replenish inventory after last week’s smaller negotiated buy and this week’s big kill, is very real. The negotiated trade may not occur until this afternoon, likely at no worse than steady money and possibly $2 higher, or more.

Beyond this week, some analysts are already calling next week’s cash trade lower. It will be important to gauge the level of beef buying interest by retailers next week at these attractive, lower wholesale prices and considering the widespread beef features this weekend around the country. Wholesale beef prices are well below a year ago whereas wholesale pork prices are not, giving beef one more reason to garner retail favor.

Copyright © 2016 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 Returns

Posted on:  01/12/2017

By Cassie Fish, http://cassandrafish.com

It’s been the first wild week in months for CME cattle futures. A limit up move followed by a near limit down move hasn’t taken place for a long time- and hasn’t been missed by most market participants.

Big money flow into CME cattle futures this week, partly an announced reallocation of positions for 2017, resulted in extremely heavy volume and an open interest surge. Though we won’t know until Friday’s Commitment of Trader’s report, it’s likely the fund buying was met by heavy commercial selling.

So, after making new highs for the move, Feb LC has retreated to just below last week’s high of $116.65 and is still about 200 points higher on the week. Of course, it’s only Thursday so theoretically, the market can still close lower on the week. Last Friday’s close was $114.82 and the $114 area has now become an important support area both on the Feb LC and spot charts.

At the same time as the futures drama, boxed beef prices took a major hit, with the rib primal down $18, chuck down $20 and round down almost $18. The loin is down a mere $9. Over all, the choice cutout is down $14.26 from a week ago and a bottomed isn’t expected until next week, lower still.

How did this happen? Big beef production through the holidays is part of the explanation. Between December 12 and January 7, the industry killed 254,000 head more cattle than last year. Perhaps the eagerness to bank a very profitable December for packers incentivized the big kills.

When beef movement finally slowed down dramatically last week, as reported by the USDA in its weekly Comprehensive Cutout report, the excess production created a problem fixed only by clearing product through the system at lower money. The velocity of the cutout break has surprised and given the end user yet another great opportunity to book attractive values forward.

The larger question looming is whether the cattle market has put in a major top or not. Last year’s rally lasted 13 weeks. If the market topped with the Dec LC expiration at $123.70, that was 11 weeks and a 29% gain, historically large. It’s worth pointing out that the 2-year decline the market experienced was even more “historically large” and that the fundamentals, such as declining weights, front-end currentness, expanded domestic and export beef demand are now in play. At the very least, a reasonable trading range will likely prevail in Q1 and early Q2 between $110 and $120 with more upside possible depending on the still-to-play-out supply scenario.

Just released USDA data for the week ended December 31 showed steer carcass weights up 3 pounds from a week ago, down 4 pounds from 2015 and up 3 pounds from 2014. The steepness of the carcass weight decline from now until May 1will be very telling regarding the overall market.

Copyright © 2016 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.

Wow

Posted on:  01/11/2017

By Cassie Fish, http://cassandrafish.com

For futures traders, yesterday’s enormous futures volume and increase in open interest that accompanied CME cattle futures push to new highs was jaw-dropping. Yesterday’s live cattle futures daily volume was 119,144 contracts and open interest increased an incredible 8,754 contracts, possibly a daily record. Total LC OI stands at 323,835 contracts. That is a 63,407 contract increase from the October bottom and 84k from June 2016 OI low.

This increase has been fueled by an increase in managed funds, index funds and hedgers. But as traders know, increasing OI and new highs are a bullish combination. How high OI goes is as debatable as it is unknowable but the all-time high occurred in 2011 slightly above 400k.

Feb LC, which is not getting the fund money influx, led the charge yesterday barreling past the last swing high and reaching its highest level since March 2016. It’s dynamic limit-up move pushed short term technical indicators into overbought territory once again. Today, the market has quietly traded both sides, staying above the old $118.50 high. Feb did fill the gap left on the spot chart by the Dec and has overhead resistance from $120 to 124.

Over on the fundamental side of the world, fed cattle prices are working higher, fueled by tighter fed cattle supplies and packers needs. The Fed Cattle Exchange averaged about $1.50 higher than last week’s 5-area average. The country trade is likely to trade at $120 as well, possibly higher depending on immediate packer needs.

Boxed beef cutout values are headed in the opposite direction, dropping $10 since January 4 with more downside to come. Larger-than-normal production over the holidays coupled with very slow boxed beef sales volume last week seems to have caught the packer with too much beef unsold. It will take lower prices to clean up offerings. The confluence of these two events has squeezed packer margins dramatically and red ink (not expected until February) will likely be seen on next week’s P&L.

The good news here is the retailer has stayed on beef features, with ads on everything from 73% ground beef to bone-in ribeyes to chuck roasts and round steak and strips. Ground beef features for $1.79-$1.89 are common. If there is good clearance to the consumer, then the clean-up of boxes at lower money ought to be good.

Still, kill cuts are anticipated perhaps sooner than February because of the margin collapse, though none have been announced yet.

A potential weather system this weekend in western Kansas could impact cattle availability if it turns severe.

Lots of balls in the air for this market currently. Two of the biggest differences from January 2017 than the past 2 years are significantly greater feedyard currentness and better consumer beef demand. Both factors will provide support for this market on setbacks.

Copyright © 2016 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.

Uptrend Resumes

Posted on:  01/10/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures completed their correction yesterday, confirming that today with bullish price action. Spot Feb LC has already traded back to the recent high and is not backing down. The bull spreads are working as Feb LC takes command, Feb now pushing premium to last week’s cash top of $118. There is a spot gap that will be filled at $119, then the high of $123.70 made by Dec the last trading day. Feb LC itself is the highest it’s traded since April 2016.

Thoughts of lower cash trade this week have been erased and replaced by expectations of prices this week reaching $120, a level not seen since July. There is resistance for cash prices from $120-122.50. Surpassing that area would be bullish and signal the market will spend some time in the $120s.

Most in the industry are not quite that bullish and the contraction in packer margins is the primary reason. The cutout is under pressure this week and this week’s larger kill, +600k, isn’t expected to help matters. Packers are interested in normalizing kill schedules in January and that is exactly what is occurring.

Beef may be a good value for retailers right now, relative to year ago wholesale beef prices and current wholesale pork prices, but so far end users have been slow to respond to offerings.

The result is packer margins, though still black, are snugging up considerably. Tighter fed cattle supplies in Q1 will make it the most challenging for packers to manage margins since Q1 of 2016. But it’s a priority for packers to expand kills in January post-holiday, before seasonally reducing kills in February and March. Some years there’s a cutout rally into the third week in January but this year seems somewhat out of step, probably because there was no cutout decline in the second half of December as there is normally.

So there is a squeeze occurring. With tighter fed cattle supplies, packers will likely be forced to pay up in order to cover kills and at some point be forced to cut kills, which normally seasonally occurs in February and March anyway.

Copyright © 2016 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.

Chop Chop

Posted on: 01/09/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures continue to trade in the same range as last week, with nothing remarkable occurring to start the week. A close above $115.35 in Feb LC would be a short-term positive and could signal the correction is ending though a close above the 10-day moving average of $115.90 would go further to insuring the same.

It’s the first day of the Goldman roll, but Feb LC isn’t losing much so far. The Feb/Apr spread has had a $2 correction since December 28 and traded in to near 0.50. How well the spread handles the rest of the roll could be indicative as to how much up the Feb will explore. At a minimum, a check of its recent high of $118.50 is reasonable given the seasonal and a test of the spot gap left by Dec LC at $119 is possible if the fed cattle and cutout values see some second half of January seasonal strength. Beyond that, remains the unknown as to how packers will balance margins and seasonally tight fed cattle supplies.

This week, showlists were down everywhere but Kansas, where fed cattle supplies are thought to be their most ample for January. Expectations for cash fed cattle prices this week are mostly $2 lower, though since only 85k negotiated cattle traded last week, packer needs may force a steady trade.

Last week’s kill came in at 537k, within the range of expectations while this week is now predicted to be 600-605k. That much bigger slaughter will require procurement to replenish supplies for the remainder of the month, which will likely see a few more 600k kills before the calendar turns to February.

Boxes this week are expected to find their footing another $2-4 lower than this morning’s $1 lower quote before too finding a bottom and working higher again.

Copyright © 2016 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.

Concluding a Correction Week

Posted on:  01/06/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures have corrected this week, with Feb LC pulling back to the lowest level in 3 weeks this morning before staging a quick +100-point rally. On its low, Feb was $4 discount to this week’s cash top. That rally left a small tail and a close above $115.35 would look positive. This pullback is not unlike ones experienced in early November and early December. Whether this is another break to buy or the December 30 reversal was a top at $118.50 remains to be seen.

Fundamentally the market is getting a variety of spin. Some are calling for a decline in the cutout next week of $5 to $7 and the choice has already lost $4 in the last 2 days. Some of what’s occurring now is a result of the counter seasonal rally in late December. The rib rally persisted farther and longer than normal and has fallen very hard since topping- $1 per pound on the primal. The chuck and round had a blistering late December rally- one that normally doesn’t occur until January- and has since stalled. Only the 90s and 50s have had a nice up this week. Because of all the above, this week’s cutout has suffered. Whether that warrants more downside next week remains to be seen. Some are even saying the cutout has topped for the next 2 months, though seasonal strength into January 20 is typical.

On the fed cattle side, trade has mostly wrapped up though regional packers act as if they would buy a few more at $188, indicating numbers are snug in the north. Packers will no doubt attempt to buy cattle cheaper again next week and given the less-than-bullish attitudes held by cattle feeders, they may pull it off. Many fed cattle sold now are profitable and feeders are ringing the register.

This week’s kill is still being debated from 530k to 545k, all depending on tomorrow’s slaughter level. Next week, the first non-holiday kill since week ended December 17, ought to come within 10k of that week, which was 606k. Packer margins have been black for several months and they will vigilantly guard their margin heading into February, a month known for red ink at the packer level. Packers will be watching end user bookings, carcass weights and overall feedyard currentness carefully and adjusting slaughter levels accordingly to try and continue their winning streak. Fed cattle supplies will unavoidably decline seasonally and won’t uptick significantly until mid-April or May.

Copyright © 2016 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.