Bearish Surprise

Posted On: 05/23/2016

By Cassie Fish,

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.

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