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.
Futures 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.