And It All Falls Down

Posted on:  9/27/2016

By Cassie Fish, http://cassandrafish.com

The big carryover of unsold negotiated cattle from last week has gained negative status as the hours have rolled by, with packers willing and able to sit back and lower bids to $104, $6 lower than 2 weeks ago and $3 lower than the few that traded Friday and Saturday. In the north, bids of $163 dressed have surfaced, $2-3 less than Friday’s limited trade.

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On top of the bigger showlists, more forward contracts for October than a year ago will help fill kill schedules and the overall picture is one of ample-enough inventories available for another 2-3 weeks to supply kills +600k. There are rumors of few more +1600 pound cattle around too, certainly nothing like a year ago, but any are too many in this market environment.

Boxed are headed higher, though gradually so. The grinding complex continues to be the primary drag. Packer margins continue to be excellent. Beef retail features are still in play. Beef exports continue to improve. Competing meat supplies continue to be cheap and ample. The same recurring factors that have dominated the market, month after month in 2016 continue to do so. The negative ones have more heft than the positive ones week after week.

Not only are there plenty of fat cattle around this week, but stories of big cow runs and kills and big feeder runs in October are circulating throughout cattle country. The sense of cattle of all classes coming at the market isPrint palpable.

Feeder futures smell it and are down over 400 points. Fats have touched limit down, taking out Friday’s low. Oct can’t take out $103.65 low until tomorrow, the weekly low from 2 weeks ago. A trip back to the lows once again seems the path of least resistance. Dec LC has less than 200 points to go to its lows while Oct LC is more than 400 points from the $99.37 reached in early September.

Remarkably, live cattle futures prices for the next 6 months are within spitting difference of one another and are only within a buck of today’s cash bids. That is new. Whether that persists and what that that means is hard to say. But it bears watching.

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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Wild and Wooly

Posted on:  9/26/2016

By Cassie Fish, http://cassandrafish.com

The live cattle futures market volatility Friday and today hasn’t helped clear up the market outlook one bit. A huge sell off on Friday was followed by an impressive sharp recovery. Today, more weakness has ensued, but again, the market has rejected the lows. Many traders have thrown up their hands in frustration, annoyance and confusion.

Technically, the market is correcting after a 2 week up. But the more important question is whether the market is headed back to the lows or is this merely a correction setting up a seasonal rally into Q4.

The fundamental news is a mixed bag too. Last week’s cash cattle trade was inadequate and lots of cattle were carried over into this week. The week ended with cattle feeders exasperated by the topsy turvy turn of events- the market looking like another $1-2 higher was possible -certainly no worse than steady- to a $3 lower trade. A few cattle did trade south at $107 late Friday and Saturday – $3 lower- while most passed.

The north trade had trickled along off and on all week at $166-168 when it became clear packer competition was not adequate to make the market stronger. There were reports of Nebraska cattle being hauled south to Kansas to fill out this week’s kill.

But last week’s kill ended up bigger than expected after all by 7k head, meaning someone made up kill for the other packers who had takenPrint out kill. This fact is positive and indicates that the big positive margins and ample supply of cattle proved irresistible combination for someone. Boxes are expected to gain a modest $2 this week as the grinding complex continues to be an anchor to the wholesale beef complex.

This week’s kill is expected to be 600k. Packers do have the advantage next week to pull on their supply of October forward contracted cattle, which takes some of the pressure off of the need to replenish in the negotiated pool. Also, this week’s Wednesday Fed Cattle Exchange on line auction is said to drawing a greater number of listings and if producers don’t “no sale” their listings, packers could attempt to set the market tone for the week then.

Unquestionably, last week was the lightest movement of negotiated cattle in months coming in at just under 50k. This volume is about half of the normal. It will be interesting to see where and when trade occurs this week. Somewhere between $105 to $110 seems a likely range to conduct business, given that neither side can stay out of the market for long.

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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Resumption of Downtrend or Pull Back?

Posted on:  9/23/2016

By Cassie Fish, http://cassandrafish.com

Cattle traders are all asking this same question this morning. Oct LC, now premium to all but Feb, completed a 965-point rally this week, pushed above the 10-day moving average with stochastics overbought and failed at the 40-day. This time the top fell short of the 100-day by +300 points.

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In an all too familiar pattern, the cattle market followed yesterday’s break with a nasty triple-point lower opening followed by near limit losses in the first hour of trading. A 50% retracement of the most recent move puts the Oct at $104.30. Last week’s low was $103.65. The market couldn’t get near the first point quick enough.

Unfortunately, whether it is the panic of bottom-pickers bailing, short hedgers selling, algo traders barraging- or all of the above, there seems to be only rapid-fire selling- and not much buying on most cattle breaks.

So what gives? Technically the market has turned back down and will close lower on the week. Already setting next week up as do or die, if the $103-103.65 falters in Oct, then back to the lows seems likely. It will be written off as another short-term rally in a seemingly bottomless, long-term bear market.

If the market does hold, then this break will be viewed as a correction and the resumption of a seasonal rallyZoetis (with a lot of historical precedence) into early Q4 will continue. The market was able to stage a seasonal rally from the December 2015 low to the March 2016 high, so such things are not out of the question, even in these times of enhanced volatility and tremendous pessimism.

Fundamentally, the landscape is less clear cut. On the plus side, a seasonal rally in boxed beef values is just beginning to get underway. In fact, the chuck and round primals have already posted good increases this week, very seasonal. Beef 50s trim continues to languish near multiple year lows, sub-$40 after trading above $90 earlier this year. A great deal of fat trim comes off of carcasses making the financial contribution- or lack thereof, more meaningful than what it might appear. Still the important point is that the cutout will appreciate in value over the coming weeks.

But we trade cattle futures not beef futures and cash cattle this week, after trading $4 higher last week will be lower this week. Perhaps just $2 lower when it’s all said and done, but lower was not in the cards as of Wednesday. Again, the packer maintains control of the tempo of the cash market, which is now the norm more weeks than not. Killing 20k less fed cattle than what has been the pace for weeks appears to carry a big punch against available supply.

Looking ahead though, if fewer market-ready fed cattle are available in Q4, then it is logical when paring that with a seasonal rally in boxed beef values that a modest rally in fed cattle prices can occur too. That is obviously an imperative development if live cattle futures are to see the north side of $110 again in 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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Feeders Take the Lead; Packers Play It Cool

Posted On: 09/22/2016

By Cassie Fish, http://cassandrafish.com

A push in cash feeder cattle prices yesterday woke up CME feeder cattle futures today and put live cattle futures in the back seat for a change. Yesterday’s daily feeder cattle index jumped up nearly $5. Not yet overbought, some feeder contract months have made new highs for the move and reached the highest level since September 2.

Live cattle futures are struggling today, Oct and Dec unable to make a new high or take out the 40-day moving average, finally turning red, posting a modest pull-back. Early week enthusiasm has waned and expectations for $2-3 higher cash prices this week are softening too.

It has been the behavior of the packer that has slowed down the upward momentum this week. Taking 20k head out of this week’s fed kill coupled with adequate inventories seems to have been enough to return the balance of power to the packer for now. A combination of formula, forward contracts and negotiated purchases all seem to add up to the packer not needing many into the first week of October. There are cooler cleanings scheduled for most weeks between now and October 22 which may keep the weekly kill in the 585k-590k range. A kill this size is enough to maintain the currentness achieved after months of big kills, but may not be big enough to gain additional front-end tightness.

PrintSeasonally, fed cattle supplies will tighten in October and November just as boxed beef values will increase. But as of today, it’s a little early for either one. Though packer margins are substantial, margins narrowed this week after cattle costs jumped $4 last week while boxed beef prices languished. The packer is willing to once again manage throughput to protect additional margin erosion- a tactic well-honed during 2014-2015 and seemingly perfected in 2016.

That doesn’t mean the market is in big trouble here, only that the up may well be gradual and methodical going forward into the fall. Boxed beef values are expected to trade back above $200 on choice Q4 compared to yesterday’s close of $187.17.

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 Rally- But

Posted on:  9/21/2016

By Cassie Fish, http://cassandrafish.com

CME cattle futures made new highs for the move this morning and a new high for the month in spot Oct, finally taking out the high posted the last trading day of August, $108.45. Oct then decided to stop at the 40-day moving average before retracing some its gains. Futures, especially Oct, are finally reaching overbought levels and there is a great deal of debate as to whether Oct has the stuff to push on to the 100-day- or not. For all its efforts this week, Oct is not much higher for the week.

Lallemand Micro-Cell

Part of the impetus for today’s futures rally was the announcement by the Chinese premier in New York Tuesday evening that China would reopen to U.S. beef. China is of significant importance to the U.S. as a trading partner for most other ag commodities- corn, beans, pork, chicken, so this announcement was met with guarded optimism. The real guts, such as when exports will start to move to China and how much volume can be expected are unknown. Skepticism as to whether these comments actually amount to anything long-term is pretty high at this juncture.

         Cattle Feeder Looking for Leverage

In the country, it’s shaping up to be a week when the cattle feeder attempts to ratchet out another $2 from the packer after a big up last week. But growing talk that this week’s kill will be reduced to 585-590k along with a couple of cooler cleanings rumored for October are taking a little edge off of perceived packer needs. Today’s Fed Cattle Exchange is rumored to have a few cattle bring $110-110.50 while most sellers passed, steady to firm with last week.

In the north, bids of $168 have been floated and generated selling interest only in Iowa on some “big cattle” to a regional. This time Printof year there are almost always stories of this kind, as it inevitably takes “forever” to clean up the stragglers heading into the peak carcass weights of late October.

One advantage of a lighter kill this week, will be to kick start the boxed beef rally. It is a week or two early for the seasonal to really start to drive the cutout, which explains why prices have languished so far this week. Beef features continue to be prominent across the country this week but the margins there continue to be very large, especially on ground beef.

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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Quiet Futures; Negotiated Trade on the Rise

Posted on:  9/20/2016

By Cassie Fish, http://cassandrafish.com

In a quiet and modest fashion, Oct LC managed to make a new high for the move today in a dull, 2-sided trading affair. The fundamental outlook is positive enough and the discount to last week’s cash trade large enough to keep selling enthusiasm limited while caution remains a constant.

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Futures technical indicators are starting to approach overbought status but aren’t quite there yet either. The same overhead resistance areas noted yesterday are still to be overcome but the possibility of breaching at least some of them doesn’t seem all that far-fetched.

         Negotiated Sales Volume on the Upswing

There’s been a great deal of discussion over the last couple of years regarding the shrinking negotiated cash trade and the lack of transparency of the cash market. CME Group executive Tim Andriesen was quoted in August as saying, “we have concerns about the lack of transparency of cash cattle markets” and the CME used that concern to delay the listing of new contracts which have since been listed.

There is an independent study on the subject being conducted by Informa. The new Fed Cattle Exchange on line auction was created partly to find a new way to inject transparency into fed cash cattle trade.

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While all this discussion has been going on and with the benefit of hindsight, it’s clear some of the reduction in negotiated trade volume in 2014-2015 was simply due to fewer cattle to trade after 6 years of heavy cow slaughter. Now that the industry is expanding and also due to fewer forward contracted cattle because of the steeply discount futures market, there are more negotiated cattle trading once again.

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Last week saw 109k movement of negotiated cattle nationally making it the 9th week in a row the packer purchased 95k to 120k head. The last time the industry traded that many negotiated cattle in 9 consecutive weeks was 2012. It’s true some areas, most notably Texas with its concentration of large corporate feedyards, don’t trade many cattle anymore. But in other states, negotiated trading appears to be on the rise.

Unquestionably there will be more fed cattle available for slaughter going forward, leading to the conclusion that negotiated volume will also continue to rise- unless there is some other market factor currently not in play that would incentivize producers to migrate to a committed packer relationship.

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This also speaks to the reality that bigger fed kills in 2016 are being supplied by bigger negotiated trade volumes. It also proves that with negotiated volume on the upswing, there is still validity and transparency in this form of commerce after all.

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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Caution Light On Again

Posted on:  9/19/2016

By Cassie Fish, http://cassandrafish.com

CME cattle futures have traded lower today, in classic “buy the rumor sell the fact” fashion, following the powerful up in cash fed cattle prices on Friday. Even though the market is due a short-term breather, today’s action raises a caution flag for traders as most wonder if the market is signally the end of yet another short-lived rally- or is this time different?

Technically the market has not turned down but doubts that the market can top the overhead resistance from $108.45 up to $112.32, basis spot Oct, are common. Based on the CFTC’s Commitment of Trader’s report released Friday, it would appear the funds have plenty more shorts to cover if the market continues its uptrend. Another positive are the bull spreads. Oct LC has gone premium to every other LC contract listed.

         This Week

Fundamentally the news is on the upswing. Boxed beef values are bottoming and preparing for the fall rally which will pick up steam in a week or two. Retail features and interest are the best in years, not months because beef is profitable for retailers and a good value for consumers.

After trading $2-5 higher last week, cash cattle prices this week will be fully steady to higher.

This week’s kill will be another 600k run after last week’s 604k total which exceeded all expectations in the face of a plant being down part of last week. Every week that goes by and the fed kill tops 485k, is another week of improved feedyard currentness.

         But Still

Caution is understandable and reasonable given the last couple of years. After reaching sub-$100 in spot, this particular rally is not quite 2 weeks old and has covered a little less than $9. The longer this bear market wears on, the lower expectations for market rallies.

PrintStill the market is in better shape today fundamentally than in a long time. Discount live cattle futures prices, as they stand today, do reflect some bearish factors, including an increase in total meat supplies going forward and packers maintaining leverage.

But months of big fed kills have cleaned up the front end. Cheaper retail beef prices have sparked consumer demand and continued feature interest. Packers will post a record Q3. Though no one can say if this market has gotten cheap enough for now or not, it isn’t a stretch to deduce that maybe $100 to $120 is a reasonable place for this market to find a trading range for now, given the above facts and throwing in the improving seasonal. Nonetheless, the caution light will stay on.

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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