Much Ado?

Posted On:  06/24/2016

By Cassie Fish, http://cassandrafish.com

The surprise vote by Great Britain to leave the EU that has swamped global markets this morning has not left CME cattle futures unscathed, but the cattle market has rallied back some periodically as the morning has worn on. Not bold enough to shrug off today’s tempest, cattle have still avoided locking limit down.

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Today’s financial turmoil has given the packers a reason to play it cool and two major packer have stayed on a $186 bid in eastern Nebraska while the only aggressive regional packer paid a little $190 and is now bidding $188.

Cattle feeders that haven’t sold yet are counting on the packers willingness to pay up to fill big kills, inspired by record margins that have been aided by the beef cutouts slower-than-normal seasonal decline. Choice boxes are $12.88 off their high two weeks ago and many analysts are predicting the market will lose another $10 before bottoming in July.

The market is also awaiting the release of USDA’s monthly Cattle-on-Feed report, where expected big May placements seem to be already priced. A surprise here is not anticipated. Today’s Cold Storage report is expected to show continued progress in normalizing beef stocks post reducing the glut carried into early 2016 due to last year’s hoarding.

Next week the packer will be buying for a short kill week. Contracted cattle will likely be relied on heavily the first half of July in order for the packer to continue to keep the negotiated price under pressure. There has been an increase in analysts this week hinting that a bottom is finally near in the extremely beleaguered cattle market- likely in the next month- with some even willing to say futures may have already turned the corner.

This rebirth in optimism has also been evident in cash feeder cattle sales this week where some cattle feeders have paid prices that put breakevens in some cases a $5-10/cwt loss again live cattle futures prices. It is interesting to ponder why cattle feeders, after two turns of fed cattle losses, feel such urgency to pay up for feeders when hundreds of thousands more feeder cattle remain outside feedyards than a year ago.
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 Catches

Posted On:  06/23/2016

By Cassie Fish, http://cassandrafish.com

The pendulum is swinging the other way today for a change, with packers upping bids as profitability and desire to run more hours inspires paying up a little. Bids $2-4 higher from $188 to $190 have been picked up in eastern Nebraska and $117-118 might not be out of the question in Texas after $116 trades earlier in the week.

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CME cattle futures have acted good all day and Aug LC is trading a little higher on the week. There is a technical correction underway and daily stochastics indicate there is more room on the upside. However, it is sobering to look at what it would take to really alter the big picture outlook, and that would be a close above last week’s high of $117.60. The 40-day stands at $116.02 and overcoming that hurdle would be a first step if something more than another rally in this bear market is underway.

The desire to kill over 600k relative to available fed supply appears to have floored cash cattle for now. Greater downside risk exists in July when beef cutout values decline more sharply seasonally and packers may be less eager to give up a little margin to run more hours. The degree of the July cutout break will be especially paramount this year. So far, the middles have out-performed expectations as consumers snatch up good beef features. However, post July 4th is a very strong seasonal for a shift away from middles to the hot dog and hamburger dominate, “dog days” of summer.

Today’s improvement in cash bids and triple digit futures gains have cattle feeders feeling more optimistic than in three weeks. History tells us that a lower cash low is likely yet to come second half of July while the ultra-cheap price level reached this week in live cattle futures give hope that at least futures got low enough. Time will tell.

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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Basis Edging Closer

Posted On: 06/22/16

By Cassie Fish, http://cassandrafish.com

It’s Wednesday and the cash fed cattle price for the week has been established at mostly $116 in the west and south. Eastern Nebraska and Iowa have still yet to trade with a $184 bid from a major offered. The on-line auction traded at generally the same price point and the Tama, Iowa fat cattle auction was $10 lower than last week.

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The biggest challenge selling fed cattle this week has been the lack of packer competition. Bids are few and far between with only two majors poking around, and only of them actually buying any. It appears that although last week’s negotiated trade volume was low, packers are getting cattle “turned in” to them at a rapid rate as feeders move quickly to unload inventory, filling up slaughter schedules and allowing them to pick and choose from the negotiated offerings.

CME cattle futures, on the other hand have become very whippy- selling off sharply, grease-fire rallying back only to back off once again. The result is soon-to-be gone Jun LC is only a buck discount and most active Aug LC is now a mere $4 back of Printcash. In the back of every trader’s mind is how soon Aug decides to go premium cash and take the short hedgers’ money away.

Certainly, futures had become quite oversold and the cash weakness and inspiration to cover shorts and bottom pick. The beef cutout has lost ground seasonal but is still holding together better than expected and packer margins are historically wide for any time of the year, a trend for 2016. There is growing talk that this week’s kill will be 610k-615k, 50k-55k head above a year ago, just as last week’s kill was 59k above a year ago. Remarkable.

Retail beef features showed up again this week despite Father’s Day weekend being past and included some steaks. Ground beef features near $2 a pound surfaced this week, sorely needed. The round primal, much used for grinds, made a new low for the year this week just as the middles have taken their seasonal tumble. It is key that the ends of the carcass find some improved value in July and August, as the dog days of summer keep the middles in check.

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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Again Looking for a Bounce or a Bottom

Posted On:  06/21/2016

By Cassie Fish, http://cassandrafish.com

Turn-around Tuesday hopes abound today now that CME cattle futures have reached oversold levels after posting contract lows yesterday. An early rally, led by feeders, has already faded but there is danger in pressing futures down here. Seven of the last eight trading days have seen lower closes and most actively traded Aug LC has lost almost $10 in the same period and is $10 below last week’s 5-area average price.

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Given that so much of the fundamental news continues to support thoughts of a bottom, many continue in a state of bafflement as to the futures market continued disregard for the same.

         Good Comp

Yesterday’s USDA Comprehensive Boxed Beef report showed brisk movement, especially in the 22+ window, supporting belief that beef demand to the consumer is excellent, likely the best in years. Last week’s kill, revised up to 607k and the big kills in general of 2016 have been absorbed handily. Less imports to compete has helped as has less cold storage stocks but cheaper retail prices have probably carried the most weight.

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         Cash Quiet

There are hopes that last week’s tiny negotiated trade will inspire at least steady prices and bigger volume this week.logo_combo_banner Those hopes are colored by a large dose of fear however, as the packers hand never seems to be forced regardless of whether he is short bought. Tomorrow’s new fed cattle auction thus far has been more of a downer than an upper as far as market psychology goes.

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Unfortunately for those fatigued by the seemingly endless futures downtrend (and their numbers are many), it is as if the market refuses to bottom until all hopes of one are extinguished. The arguments regarding the discount, algorithmic trading, and broken futures contract haven’t stopped the market, as it appears to be on the cusp of the lowest prices in years.

Boxes will continue to soften seasonally for at least another month and kills will stay large as long as black packer margins and beef demand support them, a long-term positive fundamental. However, maybe the market needs uniformly bearish news before it can finally relent from anticipating it, and that may take a while.

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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Another Limit-Down Monday

Posted On:  06/20/2016

By Cassie Fish, http://cassandrafish.com

The path of least resistance in CME cattle futures continues to be down as limit losses were posted this morning by 10:15 am. Talk circulated of a $115 cash trade to a major packer this morning in the north, already lower than last week’s big drop.

The market continues its Jekyll and Hyde existence. Good news is still plentiful. Last week’s 603k slaughter was the largest since June 2014 and this week is expected to be 600k, aided by exceptional packer profit margins. Weekend clearance of beef was good to very good and boxed beef inventories at the packer level are in good shape too. The cutout will seasonally soften this week, down $5-7 possibly, wholly anticipated.

On the cattle selling side, the cattle feeder was not able to entirely clean up showlists last week as it was difficult to trade volume at any given price, as the market literally traded at least seven different price points as bids were lowered, sometimes hourly. It is not a stretch that with such a big kill last week and this week coupled with a 5-area negotiated cash trade volume of a mere 48k head, that the packer will be forced to buy big volume this week and a significant transfer of ownership from feeder to packer is imminent.

         Cash Cattle Price Outlook

Last week 5-area average steer prices were $120.62, the lowest of 2016 and the lowest since the market bottomed in December. This week could see prices decline and test the December 2015 low of $116.64. Last week’s cash price was the lowest for that particular calendar week since 2012 when prices averaged $119.52. In 2012, the summer cash lows came the third week in July at $112.90, and the support on the long-term weekly cash chart is $113-116. To find support below that, one must look all the way back to 2011.

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The dramatic decline in cash prices in recent weeks seems to be the combination of multiple factors including: bearish market psychology reflected in futures both price and action; the desire of cattle feeders to “get in front” of seasonal summer weakness, greater supplies and take advantage of the still attractive basis; extreme equity pressures on the cattle feeder; and perhaps the growing realization that the redistribution of dollars from the cattle producer to the packing sector will prove to be extremely difficult to recover. Packers are able to effectively leverage their formula, forward contract and company cattle supplies, which stand at around 80% of their total needs, especially during times of growing supplies.

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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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Small Basis Correction in an Ugly Down Week

Posted On:  06/17/2016

By Cassie Fish, http://cassandrafish.com

It is the final day of what has been a week marked by surprising weakness. Monday’s unexpected limit-down move was followed by a fed cash cattle market that weakened what seemed like hourly.

As cash declined, live cattle futures managed to find support near the May lows and scrambled 270 points from yesterday’s low to today’s high before backing off once more. With cash prices $6-8 lower than a week ago compared to Aug LC currently $4 below last Friday’s close, basis has finally made a move to narrow.

The most disheartening aspect of this week for the cattle feeder is the inability to trade volume at any given price. Packers have bought a few hundred then backed up repeatedly. Understandably, it has been difficult for cattle feeders to assimilate how fast prices have melted down, which has stymied decision-making. There will be some cattle carried over into next week, when the prospects don’t necessarily look much better.

The USDA weight data released yesterday showed a small gain, right on time seasonally, though steer weights are still 2 pounds below last year’s record.

PrintSome good news, this week’s kill is expected to clock in at 596k, the second largest of 2016, spurred by good beef demand and excellent packer margins. Boxed beef prices have begun their seasonal correction this week and the historically wide choice/select spread has begun to narrow. But the drop in cattle costs for packers this week have given the packer a head-start in holding margins together, even as many are braced for a $10 drop in the cutout next week. Kill will stay well above year ago levels this summer.

Many are ready to turn the page on this week. Futures are oversold, but not grossly so. Perhaps yesterday’s lows in futures meant something and a triangle is forming. The basis change associated with summer cattle markets could have begun and continue next week or this week could have been a false start. As wild and unpredictable as this market has been, it is tough to have much confidence. Nevertheless, it remains important to acknowledge the improvement in critical fundamentals such as beef demand and feedyard currentness and just as important to fight to hold onto these improvements the rest of 2016.

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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Steady March Lower

Posted On:  06/16/2016

By Cassie Fish, http://cassandrafish.com

Another day, another 100 points lower. CME cattle futures stubbornly and methodically have made new lows for the week again. Feeders are losing to fats and have made new contract lows, as the realization grows that there is nowhere else for a cattle feeder to claw back margin except buying feeders cheaper.

Today’s decline in futures pales in comparison to what is occurring in the cash fed cattle market this week. It has been a dramatic collapse. From a few cattle that traded earlier this week at $125 to $119 this morning, negotiated prices were $3 and are now $9 lower than a week ago. At least for today, the basis is narrowing a tiny bit by virtue of cash breaking faster than the board- though it is still wide.

PrintThere are only a couple of packers in the hunt this week and less competition is a pressuring factor. A few more captives, a few more cattle bought with time and packers are able to fill the remaining slots more easily. Most cattle feeders are doing all they can in difficult circumstances, selling cattle green in some instances, to stay ahead or at least in step with marketings.

This week’s kill is expected to be 590-600k and packer margins are +$100 per head. June beef demand has been excellent, the performance of the middles exceptional- both contributing to better than expected pack margins this month. There are widespread, cheap beef grilling features advertised for Father’s Day weekend. The cutout did make its seasonal top this week and will lose as much as $10 over the next several days. With cash cattle prices dropping as dramatically as they are that will keep margins black and kills up.

Kill levels in July and August 2015 were too small, ranging from 532k to 556k. This year the industry will continue to exceed year ago kills by 25k-50k per week the rest of the summer, as it has since March.

There has been discussion about how low the cutout would have to go this summer to equal what live cattle futures are portending. That analysis seems to be assuming that packer margins would resemble the past not what they are today. The packing industry was forced to make massive cuts in slaughter capacity to survive the lowest cattle numbers in modern history. Now as cattle numbers slowly increase and beef demand is stimulated by greater production and lower prices, the packing industry is recouping losses at the expense of the cattle feeder.

Some may wonder why the packer doesn’t’ run more hours with margins so wide, but the packing industry lost hundreds of employees over the last several years when running reduced hours was required to survive. It is tougher to ramp back up than to wind down. At some point, of course, the packing industry will begin to add staff but they too must gauge the pace of expansion in cattle supplies.

Both the cattle and beef packing industries are in a state of transition from operating with extremely small supplies to slowly expanding greater supplies. Part of today’s challenges are very much related to this “big picture” shift. No doubt market participants have been intimidated and frustrated by the change in the way CME cattle futures trade and there have been other issues at play as well that have contributed to a very difficult market environment in 2015 and 2016. Today though, the core issue of throughput and competition for supplies is a dominant one.

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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