Follow-through Friday

Posted On: 05/27/2016

By Cassie Fish, http://cassandrafish.com

CME cattle futures have continued the rally begun yesterday, stopping at overhead, closely watched moving averages and short of last Friday’s close. Today’s performance so far has been encouraging but not yet entirely conclusive that yesterday’s impressive rally is for real.

In the country, packer bids have been renewed and in some instances upped bids a buck this morning from yesterday’s $125, rumored to have moved some cattle at $126. With black margins and peak beef demand seasonally, cattle still work even if the packer has to give up a little margin. It certainly seems as if cash prices will end up recovering some of the mid-week loses, even if cheaper than last week.

More importantly are expectations of more cash price improvement next week. If retail beef clearance over the weekend is active, then packers might even be able to get some money back on a cutout that has lost $7-10 this week on choice and select respectively.

June is typically a transitional month. Memorial Day weekend and Father’s Day features dominate the first half before the attention shifts to the burger and hot dog portion of the summer, July 4th and beyond. The rib and especially the loin primals were largely responsible for the nice rally the cutout just had and cuts from those same primals seasonally soften as summer comes.

PrintThe lackluster performance of the chuck and round since January has done the cutout no favors which is why increasing ground beef demand this summer at competitive prices against pork and poultry is crucial to the ends finding some footing. Both took out the December low in May and another round of lows there could put pressure on the cutout and packer margins during July a time when cattle supplies are expected to increase.

Keeping kills up (this week is estimated at 590k), weights coming down and currentness improving are all also just a critical to how the market will weather the mid-June to August time frame. Other factors are helping such as better exports, lower imports, lower beef in cold storage. Still, the muted nature of the 2016 rallies in the midst of improving fundamentals could well be a signal that price vulnerability is still in play and continued improving fundamentals necessary as the market heads into the final month of Q2 and looks ahead to Q3.

Note: Next week, The Beef will be written by guest blogger and +40 year cattle trading veteran Gary Lark, as I take a few days off. I’ll be back June 6. Here’s wishing everyone a safe and enjoyable holiday weekend. Sending out a big thank you to all those who have chosen to generously serve and sacrifice for others on this Memorial Day weekend in the U.S..

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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Packers Up Bids; Futures Rally

Posted on:  5/26/2016

By Cassie Fish, http://cassandrafish.com

Some packers appear to need cattle for this and next week’s kill and are beating the bushes for inventory this morning. As bids inch higher, CME cattle futures have responded by rallying hard after another big sell-off earlier today.

PrintYesterday morning, the new on-line fed cattle auction saw a few cattle trade from $123-125.50. Today a few more cattle have traded at $125 but some are passing it. Bids by regional packers of $198 dressed, which is the highest price dressed paid this week, are being passed as well. For now, the cash market seems to have found firm footing.

Futures have taken out the highs from the last two trading days after making new lows for the move in most months. To really be convincing, Monday’s high needs to be eclipsed, the gap filled and a higher close on the week tomorrow would cinch another short-term low has been made. Key moving averages are gathered just above the gap. There is still plenty of time for that to occur. Futures are oversold, though not grossly so and there is plenty of room to follow-through.

As the choice/select spread pushes out to almost $20 today, the statistics continue to remind cattle traders that front-end supplies continue to become more current. The push/pull of improving fundamentals and expectations of seasonal weakness continue to take turns influencing futures trading. Average cattle carcass weights dropped another pound according to the USDA data released this morning, not as impressive as a week ago but still 3 pounds below year ago record highs.

Expectations are also very high that this weekend’s retail beef movement will be excellent and fill-in buying next week will be as well.

As has been the pattern of the cattle market in 2016, the good news comes in waves followed by another round of doubt that good news will sustain. As the calendar turns to June next week so will traders’ attention to considering just when and where the summer lows will land.

But at least this week, actual demand for negotiated cattle has pulled futures back from the brink.

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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A Breather

Posted On: 05/25/2016

By Cassie Fish, http://cassandrafish.com

After two hard days down, CME cattle futures are trading green this morning, consolidating after 2 days of big losses. A trickle of negotiated cattle have traded $195-196 in the north and $125-126 south, generally $4-5 lower. Bids this morning of $124 have been passed. Next week packers will be buying for a full kill week for the first full week in June and expectations are already building that whatever cash loses this week- next week will be steady at worst.

Lallemand BannerSome long-awaited and welcome news has surfaced this morning, aggressive retail beef features for Memorial Day weekend are being spotted in Denver, Omaha and elsewhere, including ground beef features under $2.00/pound. With retail prices the lowest in literally years, that ought to empty some shelves. Rainy weather forecasts hopefully will not interfere.

Boxed beef prices are declining this week as expected but packer margins are still black because of the packers’ ability to buy cattle cheaper and stay ahead of the boxed beef decline. This week’s kill is estimated at 585k-590k, boosted by a big Saturday kill, a positive.

Technically, today’s consolidating action has done nothing to improve the look of the charts. Certainly, the chart suggests a test of the April lows is possible if not probable, with the looming question as to Printwhether that level holds or not. On the spot chart, taking out $114.90 sets up a look at a 2012 low of $112.22, though it could be the Aug LC that checks that in July, leaving the Jun LC in the clear. A big gap above Monday’s high seems unfillable this week, as the basis refuses to budge much under $7.

The underlying negative pull of a bearish futures bias continues to dominate. The substantial number of cattle placed against second half of July through September stands out in the distance as a source of real supply concern and continues to overshadow the progress the industry has made in lowering carcass weights below year ago levels. Futures may not loosen their bearish grip until that timeframe is much closer than it is today, muting good news and any rallies it brings. The more current the industry is when it gets there the better and the better chance that the reality will turn out to be less negative than feared.

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 Break Continues

Posted On: 05/24/2016

By Cassie Fish, http://cassandrafish.com

CME cattle futures made new lows for the move today, though there have been a few intra-day rallies to sell- or raise a bull’s hopes- depending on one’s bias.

logo_combo_bannerThough it is not showing on Mandatory Price Reporting, a rumored traded yesterday afternoon in Nebraska for $198 dressed to a major packer for delivery this and next week, sent the jitters through many cattle feeders as the news spread. Whether true or not, it was a graphic reminder that the path of least resistance continues to be lower, given the calendar. It’s the “how much lower how fast” that is in question.

With the big discounts, futures have a head start on seeking lower prices but with the seasonal screaming lower, no one can argue against it, at least not successfully so far. Aug and Oct LC are taking the brunt of the selling now as the focus on just how low cash can go during July/August/September. Even optimists generally anticipate a trip back to the December cash low of $116-117 sometime this summer.

PrintWhat is different about this break compared to the Q4 2015 break is that there was a problem then that needed to be fixed. Lowering out-weights, becoming more current was believed to be the ticket to a better market. So that is what the industry focused on and as of last week, weights dropped below year ago levels for the first time in a couple of years. Cash also had a $22 spring rally from the December low.

Now the industry faces what is expected to be a normal summer seasonal in a more current marketing position, thanks to bigger kills and better retail interest than a year ago. The big kick off to summer grilling season is this coming weekend. But improved currentness is expected to only soften the break, not prevent it, which is translating to fear because the available actions for cattle feeders has the appearance of being even more limited. Pulling cattle ahead, staying hedged the discounted board- are two of the short list of options.

A major third option is rethinking feeder cattle values and lowering bids on feeders for placements. As the last couple months have acutely shown, it has become quite difficult to take any margin back from the packer- even when the news is good. The cattle feeder has no choice but to buy feeders cheaper and push the loss further down the supply chain. The pressures on equity in the cattle-feeding segment are just too great.

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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Bearish Surprise

Posted On: 05/23/2016

By Cassie Fish, http://cassandrafish.com

CME cattle futures have collapsed, with some months touching limit down, as bulls abandon positions. Friday afternoon’s USDA Cattle on Feed report highlighted larger-than-expected placement activity in April, eclipsing the positive marketing number entirely. This market has had a knack for finding the negative and then successfully magnifying it, repeatedly.

The monthly USDA update tells us that, in real numbers, there were 70,000 fewer cattle on feed May 1 than April 1 and 143,000 head more than one year ago. Never mind that that the aggressive slaughter schedule of 2016 has the industry blowing through market-ready supplies at an impressive clip, each week slaughtering 15,000 to 30,000 head more than a year ago for going on 3 months.

In addition, released Friday afternoon was the CFTC’s Commitment of Trader’s report, which showed Managed money got long on the rally while Commercials sold the market, another, set-your-watch consistent statistic of the last 18 months or so. Those longs are being exited in quick order today.

Technical support points were destroyed on the opening. June LC has minor support at $117.70, which corresponds with a .618 retracement found at $118.02. So far, that area has held.

Though last week’s great fundamental news provided no oomph for an up, it is certain this week’s weak fundamental news, in the form of likely lower cash prices and lower boxed beef values, will fuel the decline. The market is also suffering from another problem, despite the $10-15 discount to last week’s cash; no one wants to buy it. Bulls have given up. Bears remain in charge.

PrintLast week’s kill ended up at 587k less than expected but still 17k over a year ago. This week the talk is 580-590k. There is a big volume of sold aheads booked through June and it is expected that slaughter levels will remain between 580k-600k for the next 6 non-holiday weeks. Weights and yields under a year ago will mean less production per head, and cattle feeders will continue to pull cattle forward with a vengeance.

Everyone knows at some point, acute front-end currentness, if achieved, will change the course of this market for the better. In the meantime, today’s action and the outlook for this week is a bitter pill.

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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A Sense of Resignation

Posted On: 05/20/2016

By Cassie Fish, http://cassandrafish.com

For cattle feeders, selling today $5 lower live and dressed in Nebraska, there is a sense of resignation. CME cattle futures are stubbornly lower, making new lows for the week, insisting that the news next week will be bearish. Topping boxed beef values and lower cash cattle prices are widely anticipated, as packers buy for a holiday-shortened week. As has been the case- and what is responsible for carcass weights dropping hard under a year ago- is widespread willingness on the part of cattle feeders to keep cattle moving.

PrintWhether inspired by the $10 basis or not, carrying cattle into June when the seasonal probability is for lower cash cattle prices, is not attractive. There is also resignation regarding healthy packer profit margins and the packers’ ability to manage market sentiment and inventory to their advantage.

Yesterday’s great fundamental news of carcass weights finally dropping below 2015 record levels, made not a ripple. By the third quarter, weights could be 10-20 pounds below 2015, which will take a chunk out of beef production. Futures are not interested in that point at present.

The improving currentness in feedyards has yet to have much of a positive impact. As long as kills stay big, currentness will increase which will limit the downside this summer. This powerful fundamental factor will matter more at some point, than it is today.

Today’s USDA Cattle on Feed report ought to confirm what the weight, grading and yield data already are, with a positive marketing number. The choice/select spread is the widest for this week since 2013, looking at weekly average data.

Technically Jun LC has filled the gap and is holding some support from $119.37 to $120.22. It is consistently gaining on beleaguered Aug LC, which is losing to everything.

There is an old saying, that it is the market’s job to distribute inventory. The market structure certainly is doing everything in its power to drag the larger cattle numbers placed against the third quarter into the second quarter. Packers’ are assisting by killing the biggest numbers in a couple of years and apparently, end users have been snapping up product the past few weeks. All this ought to soften the landing for the summer low. But until we get further along, the futures market would prefer to still assume the worse.

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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Down Again

Posted On: 05/19/2016

By Cassie Fish, http://cassandrafish.com

The combination of weak commodity markets, responding to a stronger U.S. dollar as the global financial community anticipates a ¼ of a point rate hike along with the belief that seasonal weakness in cash cattle prices is at hand were enough to swamp CME cattle futures today.

Corn, beans, gold- many markets are down hard to day so cattle are not alone. Though cattle act as if a limit-down move might be necessary. Once again selling the big discounts, despite improving fundamentals, was the right trade.

PrintFutures demonstrated again this week the inability to sustain above the 100-day moving average, let alone make a run at recent highs and instead retreated below the 10-day before Jun LC took out last Friday’s lows- technically bearish.

Cash cattle traded in Kansas and Texas yesterday at $131-132- though not a lot lower than the prior week- it was interpreted as a sign of what’s to come- lower cash cattle prices as the market seeks its summer low. Quite a few cattle were sold “with time”. This $10 basis feels like it is set in cement and could be with the market for some time to come. The north has traded only a few cattle $206-208, lower than last week too. The fact that there aren’t many cattle behind what’s on the showlist is irrelevant to futures but will likely keep packers engaged, especially in the face of lower cattle yields, grade and weights.

Though it is obviously not a futures market factor, talk is boxes will hold together until mid-next week, extending their incredible rally and exceeding most expectations. This feat accomplished on the biggest kills since June 2014. Impressive.

Also impressive are Q2 packer margins, mid-way through and exceeding expectations as well.

Retailers still seem reluctant to pass on savings on beef to consumers as the Wall Street Journal’s survey showed the average price this week rising from $4.84 to $5.04 per pound, still down from $5.31 a year ago. Pork prices rose also while chicken won the “cheap protein contest”, averaging $1.69 per pound, down $0.08.

Cattle carcass weight data will be out later this morning, showing weights declining; however, that news is not likely to influence the money flow on this “sell commodities” day.

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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