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.

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