Not Done Yet

Posted on:  8/26/2016

By Cassie Fish, http://cassandrafish.com

The oversold cattle futures market is still in its slow motion decline, very possibly on its way to testing or even making new life-of-contract lows. On the meek morning rally, Oct LC today couldn’t take out last week’s low of $109.65, let alone challenge last Friday’s close of $110.25. Currently that puts Oct about 312 points lower on the week. Of the last 13 trading days, Oct has closed lower 12 times. Today will be the 13th.

A decent number of cash cattle traded for 3-week out delivery yesterday afternoon at $178 dressed to a major packer, $6 lower than this week’s top dressed cash trade, illustrating how the market keeps moving away from the seller. Clean up this week doesn’t appear to be great.

The one piece of good news released yesterday, steer weights down 13 pounds from a year ago, may have lessened fears of another fall wreck for analysts but so far, it’s had zero positive influence on futures or cash prices.

Today’s action wreaks of capitulation. But next week is a “long week buying for a short week” for packers and at this point, a steady cash go nextZoetis week would be a victory. The potential for a new low for the year in cash prices next week feels very real today, as futures fall. Feeder cattle futures have been hit pretty hard the last couple of days as the realization that cattle feeders must buy cattle cheaper if they have a prayer of surviving more economic pressure.

There’s really nothing new. How much lower the market may or may not go at this juncture is impossible to say. With packer competition limited if not seemingly extinct, emotion in the form of fear is the driver. The sense of powerlessness being experienced by the cattle feeder is dominant.

The packer is simply buying a few then backing up, keeping kills big and making money. On the positive side, excellent beef features for Labor Day weekend are anticipated and the hope of big clearance to the consumer is high. But the numerous choices of cheap protein keep the victories for retail beef sales modest and hard-fought, a theme that won’t change, especially in light of feed prices.

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.
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Cash Weaker than Futures

Posted on:  8/25/2016

By Cassie Fish, http://cassandrafish.com

The cash fed cattle news this week has been quite negative—weakening daily, with the bulk of the trade occurring yesterday $2-3 lower. At the same time, CME cattle futures action isn’t awful though it might be a stretch to say they don’t act half bad. Last week’s $6 loss in futures and $1 loss in cash hasn’t quite flip flopped this week, but the action could be interpreted as a possible basis signal.

Zoetis

Of course futures are very oversold and they haven’t made any kind of decisive up move to confirm that the market has bottomed. Futures still have not filled the gaps left July 25 and the trading range in futures as the week has progressed has become narrower and narrower. From a technical perspective, a higher close on the week tomorrow, above $109.65 in most active Oct LC, would lend some additional credence that another short-term low is in the making. But it seems a long time until then.

Boxes are holding up better than many expected, especially considering beef 50s got pummeled again this week and actually went discount to pork 42s. A low there should finally be in the making and the rest of the cuts are generally holding their own save the loin primal which has slipped another $3 this week. The net result of a generally steady cutout and much cheaper cattle costs is wider packer margin. At least kill levels will stay robust.

There has been some trade out front for cattle at $115 to deliver Labor Day week. A major was bidding $175 dressed today for 3-week delivery. Dressed trade this week has ranged from$181-184.

The actual weight data released today finally shows the gap widening between last year and this year’s carcass weights, a welcome sign. Looking at the 5-area carcass weight data, broken down by areas, it appears the large formula yards are feeding cattle consistently to heavier weights while Nebraska and Iowa weights are falling off relative to a year ago. Formula feeders are rewarded by better yields. All carcass weights are rising seasonally of course, but it appears that the aggressive slaughter pace of fed cattle has improved currentness.

The slog to get cattle sold on a down market is still in play for now. Tighter supplies and a seasonal rally in boxes are just far enough away to give the sellers dealing with the immediate market no relief.

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.
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Erode. Erode. Erode.

Posted on:  8/24/2016

By Cassie Fish, http://cassandrafish.com

Cattle futures may not plunge limit down often anymore, replacing drama with a quiet, daily erosion. Underlying gaps still aren’t filled but CME cattle futures can’t lift their head up. The oversold condition is, for the moment, irrelevant.

The question of whether the market will fill the gap has been replaced by when it will fill the gap and life-of-contract lows loom just below the gaps. With no help from the fundamentals, longs are bailing out and some panic new selling is no doubt occurring. The argument that futures are portending “too cheap” an outlook has proved to be highly fallible.

More fed cattle have traded lower on the week since yesterday morning, $115 live and $182-184 dressed- in Nebraska and Iowa. The pattern of weaker cash sales each day has continued this week, just like last week, and undermined the position of the negotiated seller attempting to hold out until later in the week. The seller who waits and passes bids then carries cattle forward is being punished, not rewarded.

Lallemand Micro-Cell

Discussions have increased this week as to whether the July cash low of $114.64, basis the 5-area average, will or won’t hold. To clarify just how cheap that price level is, one has to go back to 2012 to find something cheaper when $112.90 was that year’s low. Boxes at that time were $182.07, a clear example of how margin has shifted in favor of the packer. Retail prices averaged just under $5 per pound in 2012.

Boxes have no bounce. Retail beef features this week are not prevalent or aggressive. There seems to be no good news to be found. Until another round of brisk boxed beef business comes along to perk things up, the profitable packer is willing to kill big and add more beef to an already ample supply.

And erode is all futures are able to do in response.

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.
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More of the Same

Posted on:  8/23/2016

By Cassie Fish, http://cassandrafish.com

CME live cattle futures are now very oversold, though the news continues to be bearish and bottom pickers are scarce. Given the outlook for this week, there seems to be no reason for a rally. Yesterday’s nice rally after holding above the gap faded by the close and today’s action confirms yesterday’s rally was nothing but a short-term correction.

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This week’s kill could rival the largest kill of the year and clock in at 605k, giving credence to the prediction of $3-5 lower on the choice cutout by Friday. Again, Q3 ought to be every bit as lucrative for the packer as Q2, the silver lining to this bear market’s dark cloud—at least some degree of currentness in fed cattle marketings is being maintained or even gained.

It was clear in yesterday’s USDA Comprehensive Boxed Beef report that sales volume has slowed dramatically as of late and it may be post-Labor Day before another shot of brisk sales activity comes into play. In the mean-time it’s a bit of a slog, not unusual for this time of year.

Cash bids have surfaced today around cattle feeding country at $115, $2 lower than a week ago and have been passed. There’s a rumor of small trade in Iowa at that price level that hasn’t been confirmed. It is not new news that lower cash trade is anticipated this week as another +100k negotiated trade kept packers in decent shape, even with big kills. Still, black margins and big kills do keep the packer in the market weekly, which is paramount.

With only 6 trading days left for expiring Aug, Oct coming on $5 below the 2016 cash low may make the Oct vulnerable for a rally in its oversold state. But today, what looks cheap is not being viewed as worth owning. And plenty of bears are betting on a new cash low being made short-term, despite expectations of tighter supplies just around the corner.
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.
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The Path of Least Resistance Continues

Posted on:  8/22/2016

By Cassie Fish, http://cassandrafish.com

CME live cattle futures are leaking lower again today, with new lows for the move in Oct on back. Halting just above the gaps left July 25, futures are now more oversold than they were on the July 21 low. Helping propel futures lower today is a continued negative fundamental outlook for this week.

Another 595-600k kill is in the works on the heels of last week’s 599k. YTD beef production is up 4.5%. The industry has killed hundreds of thousands more fed cattle this year than last year at lighter carcass weights. Predictions for this week’s cash cattle trade are already $1-2 lower following last week’s weak to lower market.

The boxed beef cutout value had one of its smaller rallies historically in August, rallying off the July low a mere $4.27 on choice. Now a recheck of the 2016 low made in late July now seems likely. Of course with packer margins historically large, there is little incentive for the packer to hold out for higher beef prices. It’s better to set the hours, sell it and move on, ringing the register along the way.

The retailer, where margins are also highly profitable, became more aggressive this summer and lowered prices to the consumer and upped features. However, retailers seemed to have slowed lowering prices for now, which isn’t helping accelerate pushing the industry’s hefty production level out the door. The next anticipated seasonal demand spurt is still 4-6 weeks away.

         COF Shows Shift Continuing

The most interesting aspect of last Friday’s USDA Cattle-on-Feed report was the confirmation of a shift underway. Large corporate feedyards in Texas, Kansas and Colorado continue to place cattle more aggressively and consistently than the yards in the north. With access to capital, these yards appear willing to accept a very small return in order to generate yardage and fulfill commitments, now that cheap feed availability is ample. Kansas placements were up 13% and on feed up 9%, Texas up 4% and on feed up 3% and Colorado up 28% on feed up 3%. Nebraska’s has 5% fewer cattle on feed than in 2015. The squeeze related to equity constraints appears to be having a direct impact on the small to medium-sized, independent feeder.

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.
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What’s Going On?

Posted on:  8/19/2016

By Cassie Fish, http://cassandrafish.com

Cash loses $1 this week. Futures lose almost $6. The pattern that live cattle futures have been in most of the time over the past many months remains intact. Anemic rallies, stalling out near the 100-day moving average- regardless of the seasonal or general fundamental picture.

Futures haven’t made a new contract low yet, but have retraced sharply, so far holding above the gap left July 25. The cash market’s inability to take out the overhead resistance of $120-123 coupled with a less-than-average boxed beef rally this month. Still at face value, $109.65 seems awfully cheap for Oct LC, given the improved currentness of the industry heading into the last 4 months of the year which typically see a seasonal improvement in the cutout.

There are lots of people that blame the weakness in the cash market entirely on the “broken” futures market. To be sure, the CME live cattle contract has issues and always seems to be playing catch-up to reflect today’s reality of the fed cattle market. Plus, the dominance on futures order flow due to “come down” and “position rolling” of large entities seems to hi-jack trade at times. Then there is the ever-present global growth in algorithmic-generated trading and its debatable impact on price action.

But on the other side of the coin of the cattle market’s dilemma is that the market is experiencing the full influence of a shrinking Zoetisnegotiated cash market coupled with expanding cattle supplies. While cattle numbers declined sharply since 2008 to the lowest level in modern history, the number of negotiated cattle dropped from 40% to just 20% currently. It’s logical to conclude that when supplies were tight, less packer competition (due to more captives and small kills) was at the very least muted.

Now, however, cattle supplies are increasing, so the remaining sellers in the cash market are competing harder against one another while the buyers compete less.

So many cattle and beef fundamentals have improved this year, but the benefit of these improvements in terms of dollars have flowed to the packing and retail sectors not the feeding sector. This is at least partly due to the lost leverage on the part of negotiated cash seller. It’s even difficult to quantify what benefit improved currentness has brought the feeding industry, even though certainly it is significant.

This year, 2016, has been the first time in history fed cattle sellers have faced selling an increasing supply to packers who already have a substantial percentage of their inventory covered on a weekly basis. Perhaps this one fact is as responsible for the anemic nature of 2016 cattle rallies as anything else- not mention the big discounts through 2017.

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.
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Cash Trading $1 Lower

Posted on:  8/18/2016

By Cassie Fish, http://cassandrafish.com

The erosion in CME live cattle futures set the tone for a weaker cash cattle trade this week. The anemic rally in boxed beef prices this week hasn’t helped either. The packer played it cool and was rewarded, despite all being willing to own more inventory just a little cheaper than last week.

Zoetis

From north to south, packers have been able to pick off enough cattle around to establish a weaker market. Many thought a steady go was a given this week, especially in light of a bigger kill, but that was not to be the case.

Whether it’s the mental fatigue of lost leverage, weaker futures, or general disappointment, the cattle feeder was an easier seller this week than expected.

Cattle futures continue to decline, not yet oversold, but far from overbought status. A bearish thought process seems to operate continuously anymore in the background of the cattle market. Exports have improved, but could be better. Cheaper beef is clearing to consumers, but there’s too much pork and chicken. Carcass weights, which are seasonally increasing, are down, but not enough from a year ago. Fed cattle supplies are expected to decline in September and October, but there is fear they won’t drop off as much as expected.

A general lack of confidence in the cash cattle market is palpable. The big kills of 2016 don’t seem to have helped the market as much as thought by now. There are still “enough cattle to go around” at these slaughter levels. It’s hard to believe cash cattle prices averaged $128 in June when now getting back to $128 is “optimistic” for fall.

Mathematically it’s impossible to create the wreck the market experienced last fall. Each week we consistently slaughter 30k-50k more cattle than a year ago. But today, math doesn’t seem to matter much, in the face of immediate disappointment.

Futures have taken a back seat today to cash, really not acting half bad considering, but they too have a long way to go to improve anyone’s outlook.

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.
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