Stronger Cash Prices Surprise

Posted on:  02/17/2017

By Cassie Fish, http://cassandrafish.com

A little bit of cash trade late Thursday at $119-120 caught some attention and was followed swiftly this morning with more of the same, $119-120- bettering the FCE on Wednesday and exceeding early week expectations. As hinted by Monday’s USDA report on negotiated, committed and delivered report, packers did lose some live inventory position and as are result, were more aggressive today than thought buying cattle. Trade is still occurring and even eastern Nebraska is strong at $190 with some passing.

This week’s stronger-than-expected fed cattle prices are a testament to the current tight supply of market-ready cattle. More and more green cattle are surfacing on the showlists weekly. Cattle feeders are making money and liking the basis and will keep cattle moving.

The packer continues to pick up good out-front beef sales which in turn, inspires keeping kills as large as possible given the tight supplies, even with spot margins less than desirable. With the seasonal low in boxes likely in place, modest price appreciation is expected, with the middles slowly moving higher out of their lows for the year thus far.

CME cattle futures have been reluctant to follow this better news and only just made new highs for the week. All contracts are higher on the week too, as the market conservatively grinds upward. In most active Apr LC, $115.72-80 stand out as key overhead resistance.

The technical indicators do show the market has plenty of room to rally before becoming overbought. If cash prices are higher again next week, then Apr LC futures could push back above the 40-day moving average and take another look at the unfilled gap between $116.65 and $116.75 left on the last rally. If the market could close above the $116.65 high, then upward momentum will build.

Fundamentally, March, less than 2 weeks away, can be a seasonally-strong potential powder keg for cash fed cattle prices. The confluence of tight cattle supplies and slowly improving seasonal beef demand makes March and early April the timing of more highs in the cattle market than any other.

No doubt, the live is the drive between now and the spring high and futures will follow its lead. With steer carcass weights, reported yesterday for week ended February 4, 11 pounds under a year ago, lighter carcasses are offsetting some of this year’s bigger kills. This powerful underlying fundamental will remain in play until May.

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.

All Clear

Posted on:  02/16/2017

By Cassie Fish, http://cassandrafish.com

After much discussion regarding how much today’s slaughter could be impacted by the “Immigrant Worker Strike”, it turns out almost all cattle plants are running at normal, or slightly reduced speeds. Shortfalls, if significant, could be made up Saturday. This week’s kill is still expected to be in the 570-575k range.

CME cattle futures opened lower this morning after yesterday’s disappointing close, possibly in response to the nervousness surrounding the work slowdown. The low of the day was made early and the market has spent the rest of the morning clawing back to green.

Bids have surfaced at $186 dressed in the north and $116 in the south- all being passed. Cash prices are expected to trade lower this week, but very likely will be at least a couple of bucks above these bids.

Boxed beef prices are holding together well and there is not much beef for sale, paving the way to a gradual increase going forward. With production levels seasonally smaller and buyer interest continuing to surface, the outlook here is positive.

Today’s export report showed beef exports continue to be brisk YTD.

The Wall Street Journal’s weekly retail meat and poultry survey showed beef prices getting cheaper while pork and poultry prices edge upwards. The average beef price was $4.60 per pound, compared to $4.70 last week and $4.97 last year. Pork jumped up 0.58 cents per pound to $3.03 while chicken increased a dime to $1.77 per pound. Beef no longer seems out of line in comparison. Pork prices are expected to continue to edge higher at least in the short-term.

Futures are continuing their choppy, rather uninspiring trade as open interest continues to drop in the Feb and Apr, day after day. With the stable outlook for boxes and cash cattle prices, the futures’ discounts are perhaps, more than adequate. It’s obvious a move and close above yesterday’s highs would excite, but the market seems intent on conservative consolidating action 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.

Futures Recover; Cash a Bit Weaker

Posted On: 02/15/2017

By Cassie Fish, http://cassandrafish.com

Today’s Fed Cattle Exchange saw cash prices just a bit lower than last week, topping at $119.25. Perhaps yesterday’s futures rally had raised hopes that cash would trade steady this week, but the packer is bent on saving money if possible and regaining control of margins. With boxed beef prices near if not on their Q1 seasonal low, packers will try and save money on the buy side whenever possible.

Packers are predictably stepping down the kill to adapt to seasonally tight market-ready fed cattle supplies. This week’s kill is expected to be 570-575k, compared to 577k last week. The impact of tomorrow’s well-publicized “Immigrant Worker Strike”, a “national general strike against the policies of President Trump” is unknown and could reduce this week’s kill. If the kill falls short tomorrow, companies would try and make up lost hours on Saturday. Next Monday’s President Day federal holiday could also lower that week’s kill to the 560k level. Nevertheless, slaughter is outpacing last year by 30-40k head as of late.

Reduction in beef production will be supportive to wholesale beef prices, especially considering continued good consumer beef demand. This week retailers are widely featuring ground beef. One retailer was giving away 5 items for every beef chuck roast purchased.

Futures reversed their decline impressively yesterday, catching bears off guard, turning some technical indicators back up. Most active Apr LC rallied 262 points off its earlier week lows. Today’s two-sided action isn’t giving either side much satisfaction. All but the Feb LC failed at the 10-day moving average on today’s rally, but so far the market has held intra-day chart support. The market is very choppy, with Feb and Apr hanging on to higher on the week while the deferred months continue to sag.

There is significant overhead resistance in live cattle futures, but the continued price firmness in the underlying cash market, supported by tight supplies, robust kills and continued good beef demand- makes the downside limited as well. What’s left is sideways market chop until further developments.

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.

Bearish Charts Up Anxiety

Posted on: 02/14/2017

By Cassie Fish, http://cassandrafish.com

Despite historically large discounts in CME live cattle futures relative to cash cattle prices, traders are eyeing bearish chart patterns and measuring out various downside objectives. The significant long ownership of managed funds, added in December and January is now viewed as a potential vulnerability. Open interest has been peeling off on the break.

So far, most active Apr LC has already dropped 825 points from its January high of $120.32. Some are saying Apr LC has formed a head and shoulders top with an objective near $105. That may seem preposterous to non-technicians, but the possibility has been discussed by traders for several days. Half-way back from the entire October low to January high is $108.80. The market has already taken out its January low.

The daily technical indicators are oversold and the intra-day indicators are as well. Hence the sideways action today, a mere killing time chop as the market awaits direction.

Market watchers are generally in three camps here. The bears are convinced the seasonal high is in and the market has resumed its downtrend- as the market anticipates the large summer supplies. Then there are those who are on the fence, unnerved by the velocity of the breaks the last two years yet willing to give credit to the improved market fundamentals which could yield a test of the January high before mid-April. The third group, are those who see a vastly improved fundamental foundation and a market that has found stability at both this price level and production level. This latter camp is expecting live cattle futures to carve out a trading range to reflect that stability and vastly improved feedyard currentness.

It’s obviously true, thanks to the accuracy of hindsight, that the large futures discounts held the last two years meant nothing as far as market direction. Perhaps this year’s even larger discounts from Aug LC onward mean nothing either. The cattle feeding industry has a large percentage of their inventory hedged and are pulling cattle forward, determined to weather this year better than the last.

On the other side of the ledger, the packer and retailer view the market differently. Both sectors have been tremendously profitable when it comes to beef. That will be true in 2017 as well and will keep attitudes positive towards pulling large volume through the supply chain.

The big difference looking at this year’s heavily discounted futures market to the last two years is simply the price level. Wholesale beef prices encompassed in the heavy choice cutout between $175 and $210 are extremely attractive to retail and foodservice. Beef has finally found a ‘sweet spot’ that did not exist from 2014 until Q4 2016. Beef has regained favor and the fact that more beef is coming late spring and summer is being viewed as an opportunity for packers and retailers and a boon for consumers- not a negative.

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.

Bears Surface as Fear Grows

Posted on:  02/13/2017

By Cassie Fish, http://cassandrafish.com

Friday’s rather lousy close in CME cattle futures spilled over into the weekend as bearishness seemed to grow. Not surprising futures opened lower taking out last week’s low from the get go. All but most active Apr LC filled the overhead gap left in late January last week while only Apr and Jun took out the last swing low today. Managed funds began liquidating longs in earnest last week and that has likely continued today.

Some think futures have resumed the downtrend after a three-month rally and do not think a spring seasonal up is in play whatsoever, apparently believing the fear of larger summer fed cattle supplies will bring the market to its knees beforehand.

While this is possible, there has been a dramatic change in fundamentals over the last year. In other similar periods of the long-term cattle cycle, there were years when the market traded in a sideways pattern before ultimately moving to a lower price level as the expansion cycle continued over several years. Of course, 2017 could be another a race to the bottom, but it’s worth considering an alternative given what’s occurred fundamentally in recent months.

Two primary, bedrock fundamental changes in the past 4 months have been the dramatic growth in fed cattle slaughter and the increase in beef demand. Plentiful fed cattle supplies provided fuel to these two elements while big profit margins for packers and retails provided the oxygen. This accelerated throughput has allowed the cattle feeding industry to reach a level of front-end currentness not seen since the first half of 2014, confirmed by the significant drop in carcass weights in recent weeks.

The futures market already has a significant supply increase factored in, with Apr LC $7-8 under last week’s cash price and Aug LC $20 under and only $4 above the cash low for the bear market move. One can argue, there is a lot of bad news already priced in the market.

Are the fundamentals that drive the cash market solid enough for futures to stabilize into a trading range over the next 3-4 months or will futures seek new lows in fear and begin carrying greater and greater discounts? Certainly, this significant fear of the summer cash market will encourage pulling cattle forward, limiting the upside and giving packers the continued edge.

What’s going on now is very seasonal. Packers cut kills every February and March. Kills over the next 9 weeks will range between 550k and 570k. Last week’s 574k was the first non-weather related step in that direction. Fed cattle supplies are seasonally tight right now, which is why cash was higher last week and why packer margins are red. It will be the second half of April before kills start to edge back up to normal levels. These same kill cuts usually put a seasonal low in the cutout in the second half of February, so the downside is limited here. It’s worth remembering that “here” is a mere $10 above the low for the move last October- the lowest boxed beef prices since 2012.

These low prices are what is keeping beef features in the mix and supporting increased consumption in the U.S. and abroad. One year ago, the cutout was over $20 above current prices, bottomed this week before rallying up over $220. Last week’s the heavy choice cutout averaged $189.39.

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.

Going Nowhere, Mostly

Posted On: 02/10/2017

By Cassie Fish, http://cassandrafish.com

Feb LC stands out for its positive performance this week. Feb filled the gap, is about a buck higher on the week, above moving averages and gaining on all other contract months this week. The Feb/Apr has moved over 200 points this week and could push out to over $4 before Feb expires.

The rest of the LC futures contracts have traded both sides today but perhaps a little firmer than expected. There is a plethora of mixed signals, technically and fundamentally present in the cattle complex currently. Therefore, this choppy, sideways trade is not unexpected.

After paying up this week, packers, responding to red margins, are seasonally cutting kills the next few weeks which is expected to cap demand for fed cattle. But, fast falling carcass weights- down 21 pounds from the first week in January- are a wake-up call that feedlot marketings are becoming more current as the weeks roll by. One year ago weights had dropped a mere 4 pounds for the same period. Weights don’t seasonally bottom until May 1.

It’s worth remembering the obvious- packers kill head but sell pounds. Boxed beef prices have seasonally deteriorated this week, the choice down $4.30 and the select losing $4.80. But the lighter carcasses combined with kill cuts will shore up values and slow the decline to probably no more than another $2-3 per cwt. Boxes seasonally bottom in the second half of February.

The kill cuts won’t be severe enough to take production levels back to the last 2 year’s historically low output in February and March. YTD the industry has slaughtered 37k more fed cattle than 2016 through week ended January 28. That number is expected to grow weekly. Unquestionably, the supply chain is moving more fed beef through its channels, especially to retail and export locations as the increased output at these lower wholesale prices is met with welcome. Further, there is significantly less beef to absorb now than last fall, which will continue to be the case until late spring.

All these elements combine to limit the downside over the coming weeks. What’s unknown is how much upside could develop. Using probabilities based on history, many are saying the market has seen its highs. But with the degree of the weight decline a powerful unknown coupled with the degree of spring beef demand- also an unknown- traders can’t rule out a week or two push to the mid to upper 120s. Seasoned traders remember there is a reason why March/April is host to more cash fed cattle highs than any other time frame.

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.

Strong Cash, Yesterday’s News

Posted on:  02/09/2017

By Cassie Fish, http://cassandrafish.com

Most of the negotiated fed cattle trade occurred yesterday at higher money in Texas, Kansas, Colorado and western Nebraska, topping at 120.50, $1.50 higher than last week’s practical top. No question that seasonally tighter fed cattle supplies fueled the up which, in turn, contributed to margin loss for the packers for next week. This good news is supporting only discount spot Feb LC today, which is staying green and widening its spread on the rest.

Futures generally defensive action is mirroring growing expectations that cash prices may have seen their high for this month as packers adjust kill schedules. February’s are always tough for the packer and kill cuts are a part of the program. Talk is circulating of cuts for next week and the week after, which includes a holiday. This week’s kill is expected to be 10k less than last week and next week’s 10k less than this week. This production step-down ought to provide some underlying support for the seasonally sloppy cutout.

Smaller kills mean packers can curtail fed cattle demand and buy time until the cutout seasonally improves in March. Of course, it is really post-Easter, which will come late this year, before the cutout really improves. Thus, the packer is faced with managing through put to attempt to match supplies with demand all the while keeping an eye on plant and labor utilization.

How much the packer can walk fed cattle prices down in the next few weeks remains to be seen, especially considering carcass weights are falling significantly below last year. Today’s data showed steer carcass weights down 5 pounds from last week and down 14 pounds from last year. However, cattle feeders are and will continue to be willing sellers, even on weakness, eager to bank profits and keep cattle moving.

The two keys relating directly to currentness- slaughter levels and carcass weights- over the next 90 days will have more to say about downside risk than any analysts’ prognostications. The market and all its participants are more than aware that supplies are above a year ago, especially from July onward. What is unknown at this juncture, and of critical importance, is the degree of beef demand and the level of front-end currentness over the next key 3-4 months.

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.
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