Wow

Posted on:  4/28/2017

By Cassie Fish, http://cassandrafish.com

What a week. Cash fed cattle prices surged by dollars yesterday to the 2016 highs, topping at $140. Packers had no choice but to scramble to cover kill needs, faced with very current front-end offerings. There are very few times, 4 come to mind, when cash prices gained as dramatically this week- twice in 2014, once in 2011 and of course, the unequaled run in 2003. It’s also even more rare to follow a huge cash up with another higher market the following week.

What makes this set of circumstances so unique, is the packing industry is heading into what was supposed to be the largest kills since 2013 and certainly holding the biggest sold-ahead boxed beef position in years too. Packers will burn formula and forward contract inventory quickly in early May, along with the cattle bought with time to supplement inventories. Packers also have raised boxed prices sharply to compensate for this week’s loss in margin. But big kill cuts are not being considered. Certainly, some Saturday kills may- or may not- be cut.

Bottom line, cash cattle prices may spend quite a bit of time between $128 and $140 in May- dramatically higher than anyone expected.

         A (The?) Primary Driver

The impact of steer carcass weights being 30 pounds lighter than 2016 is the equivalent to slaughtering 16k fewer fed cattle than last year, using the most recent actual fed kill data. Steer carcasses are the lightest for the week ended April 15 since 2012 and it is now conceivable could bottom as low as 829 pounds.

         So What About Futures?

The historically discounted CME live cattle futures make selling this overbought futures market a dangerous move. The funds have all the money on this Friday, with futures at life-of-contract highs and spot April approaching the April 2016 futures contract spot high. Expect increased volatility, wild intra-day set-backs and rallies short-term. Long-term, it ain’t over ‘til it’s over.

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.

Anticipation and Acceleration

Posted on:  4/27/2017

By Cassie Fish, http://cassandrafish.com

The only unanswered questions today are how much higher will cash trade and is it today? CME cattle futures know it’s coming as do the hedgers- short futures and short calls. Calls, once sold with confidence are now in the money and traders must buy futures to offset or blow out. At the same time, put values, once bloated in comparison are slowly draining away.

         Upping Bids by the Minute

It is no secret that packers are caught this week. Bids are being upped quickly, now as high as $137 south and $219 north. Very few cattle have traded. As the dramatic morning wears on, futures are posting +200 point gains and are eyeing limit up again, the discounts proving too much.

Over 300 points higher, limitless spot Apr LC, which expires tomorrow, has rallied over $38 since the bottom last October and is only $7 below the 2016 high in live cattle futures made March 2016. And the rally occurred on much larger beef production and fed cattle supplies. If there was any doubt beef was back, that doubt should be shattered by now.

         A Blow Off?

Today’s action does have the earmarks of a blow off. Boxes have been rallying but have not kept pace with the dramatic rise in cash fed cattle prices. Packers will be forced to raise boxed beef prices and may adjust their aggressive kill schedules down.

Still there are several dilemmas here. First, are there enough market ready cattle to go around this week- allowing packers to finally regain leverage? Lighter carcasses produce fewer pounds. Second, plans for much bigger kills in May and June maybe altered some but won’t be altered dramatically- but it will take killing greener cattle to fill them. Packers must force product values higher though, in order to make this work as their margins are in danger of going red.

Another problem are the discounts. Jun LC is a phenomenal +14 back of Apr LC. Even if this is a blow off, is it THE blow off? When the industry becomes this current on the front-end and has this monumental basis incentive, perhaps not.

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.

Not Done Yet

Posted on:  4/26/2017

By Cassie Fish, http://cassandrafish.com

The cumulative positive affect of selling cattle at lighter weights with fewer days on feed is reaching a point of greater positive influence. An excellent boxed beef sold-ahead position and terrific exports has incentivized profitable packers to keep kills much bigger than a year ago for months. Cattle feeders have been and continue to be motivated to aggressively market cattle because of profitability and basis. Same is true for the retailer, motivated by the consumer’s positive response to beef features, supporting excellent sales volumes.

The entire supply chain has moved beef through the system with efficiency, profitability and enthusiasm for about 6 months. The net result is cattle prices are higher than anyone expected and are fundamentally solid, even as supplies seasonally increase for the summer.

         This Week

It was reasonable to assume that with May contracts within grasp and a 141k negotiated trade last week, that packers would be able to halt the upward momentum of cash fed cattle prices this week. But there is an underlying pressure to replenish and even grow live inventories to fill the 620k and 630k kills planned for the next couple of months.

Many of the cattle on this week’s showlist are green, as hedged cattle feeders run their calculators and determine the historically wide basis will pay them bigger dividends then taking the cattle to their intended out-weight and out-date. Then there is the question as there really are enough cattle to go around period, given how many cattle are already spoken for with so many numbers sold with time. Cash prices may end up steady this week or even higher.

         No Longer Asleep

CME cattle futures are surging higher today, in many cases making life-of-contract highs again, in a seeming admission that their discount is overdone. Today’s rally is even more impressive because only a minor correction took place on Monday before the uptrend resumed. Perhaps enough time has finally passed with the cash market holding way above $120? Maybe the market has begun to admit there are some bullish fundamental factors in play than the big bearish story of the expansion of the beef herd.

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.

Tuesday Bounce

Posted on:  4/25/2017

By Cassie Fish, http://cassandrafish.com

After yesterday’s big break, futures are rallying, taking an intra-day breather. A few contract months managed to get above yesterday’s high before sagging back to just higher on the day. Most active Jun LC has posted an inside day thus far.

Futures are still significantly overbought, so backing and filling in a sideways to lower manner is to be expected, with the big discount to cash always there to provide a tether of support. The Apr/Jun spread pushed out over a whopping $14 today and Apr is discount to last week’s, new-high-for-the-year cash average of $131.67 by over $2.

Some traders remain fixated on the large open interest in live cattle futures as a bearish factor, but so far it has not proven to be a negative factor.

Last week’s negotiated trade volume was one of the biggest of the year at 141k head, with 22k of the total for the 15-30-day delivery period. A few more cattle traded yesterday from 125-129 for 2-4 weeks out, as cattle feeders continue to get out in front of this market. The continuation of this activity only increases the level of currentness in the marketplace.

This week’ showlist dropped and the cattle on the list have May out-dates. There is plenty of talk that many of the cattle on the list need an extra 30-40 days on feed, but it is unlikely they will get it.

This week’s kill estimate has ratcheted up to 610-615k from yesterday’s 600-605k. Packers are eager to ramp-up line speeds and Saturday shifts. Cutout values are on firm footing.

Next week packers will be able to schedule May forward contracts, which total 238k, down from April’s 349k but up from a year ago’s 177k. The combination of last week’s big buys and next week’s pull on contracts should put the packer in the position of having to pay no more than steady and perhaps even buy cattle $1-2 lower. But even if the market is a little lower, it’s a fact that the cash market is closing out April much stronger than anticipated when April began.

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 Correction Begins

Posted on:  4/24/2017

By Cassie Fish, http://cassandrafish.com

With Friday’s larger-than-expected placement figure the catalyst, overbought CME cattle futures have begun a well-earned correction in earnest. Bears are finally getting some relief after a relentless rally as futures give back almost 200 points in some contract months.

If it weren’t for the enormous discount of futures to cash prices, the bears could be a lot more confident that this break is the beginning of a sustainable downtrend, rather than a correction. But as this market has proven on numerous occasions in 2017, that assumption has not been profitable.

Was Friday’s USDA Cattle-on-Feed report really that bearish? Thanks to another month of monster marketings, April began with 51k head more cattle on feed than a year ago, about a half-days’ worth of fed kill. Nebraska finally plowed into placements, after being the laggard for months, and brought their state’s COF total to up 1% YOY. Kansas continues to have a boatload of cattle on feed, their numbers up 4% while Texas slipped to 2% less YOY. This well-entrenched pattern of an accelerated turnover rate in feedyards is expected to continue, as are carcass weights expected to stay well-below a year ago.

After paying up big for cattle last week, packers will leverage three things to attempt to break fed cattle prices this week: last week’s big buy of +140k head, next week’s access to May forward cattle contracts and this week’s sell-off in futures. Packer margins are only modestly black and packers intend to buy cattle cheaper while pushing boxed beef prices higher, taking advantage of the strong seasonal.

This week’s kill is expected to show a minor increase, 595k-605k compared to last week’s 595k. If over 600k, it will be the first time since January 2017. Slaughter levels will expand going forward with +600k expected throughout the summer.
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.

Quietly Higher

Posted on:  4/21/2017

By Cassie Fish, http://cassandrafish.com

After a big week, CME cattle futures are quietly higher on the day, off from the highs made early, but holding gains just the same. After all it’s a Friday that will see a bullish USDA Cattle-on-Feed report later. And the Friday of a week when fed cattle prices reached the highest level of this spring with ease.

Most active Jun LC is merely a couple of hundred points above last Friday’s close, though it feels much higher than that- especially to the record number of shorts. Today’s rally did have a shorts-blowing-out feel to it combined with a reluctance of new shorts to enter the fray.

And then there is the buzz about carcass weights. Plummeting weights, discussed here a great deal, were confirmed yesterday by the USDA, and are receiving rapt attention by all. The exciting aspect is that it will be 4-6 more weeks of the same and once weights do bottom, their rise will likely be muted, perhaps the entire year. The fall, seasonal top in weights could come in 20 pounds under a year ago’s 918 pounds, which could result in a shortfall in Q4 beef production compared to 2016. Are Dec LC really $112.47?

Packers will begin next week with a shored-up live cattle inventory position after decent trade volume this week and May forward contracts finally within reach for the week of May 1 kill schedule. Plus, they own quite a few cattle with time. They will use this added leverage to halt the upward momentum in fed cattle prices.

CME cattle futures may also take a breather next week, backing and filling, as traders anticipate the pre-roll, then the roll dominate trade in early May.

But given futures discount and the extreme front-end currentness in most feedyards, both the cash and futures markets will find support on set-backs for weeks to come. With the industry this current, heading into the two peak beef demand months of the year and ramped up kills, Jun LC may surprise traders as much as Apr LC has.

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.

More New Highs

Posted On: 04/20/2017

By Cassie Fish, http://cassandrafish.com

The multiple justifications for the historically wide live cattle futures discounts were cast aside for just a moment this morning. Futures opened decisively, even enthusiastically higher and rose to life-of-contract highs yet again, except for spot Apr LC. Apr LC pushed to the its highest level since the since November 2015 and the highest of any spot LC contract since April 2016.

Futures, technically overbought, did not respond yesterday to the making of new highs in cash fed cattle prices for 2017. Not only were fed cattle prices the highest of the year this week, prices were higher than the prior year for the same week for the first time in 22 months. Talk about an end to a losing streak.

Today the market threw off its bearish shackles for just a moment and most active Jun LC reached $117.47, briefly narrowing the monster basis between itself and cash prices. The surge didn’t last long though as only Apr maintained its +100-point gain while the rest of the contract months began to slip once again.

The futures market may be close to another short-term top but the high probability of a bullish USDA Cattle-on-Feed report tomorrow isn’t making top picking any easier.

The more interesting question is whether Jun LC will take out this short-term high in May. The exceptional gains made in feedyard currentness will continue to provide good support under the fed cattle market for the next several weeks. Packers have good sold-ahead boxed beef positions and big kills scheduled anticipating bigger cattle numbers. Fed cattle supplies will increase seasonally but the dramatically lighter carcass weights will require more head to fill needs.

Profitable feedyard p&ls and continued fear over summer cattle prices will keep cattle feeders pulling cattle forward. This now, well-entrenched pattern will continue in 2017 and positive market fundamentals are the by-product.

The primary fundamental result of this practice is reflected in carcass weights. For week ended April 1, steer carcasses, at 852 pounds, were down 10 pounds WOW and are down 28 pounds YOY- 6 pounds below the 5-year average. Weights don’t bottom 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.
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