Posted On: 05/25/2016
By Cassie Fish, http://cassandrafish.com
After two hard days down, CME cattle futures are trading green this morning, consolidating after 2 days of big losses. A trickle of negotiated cattle have traded $195-196 in the north and $125-126 south, generally $4-5 lower. Bids this morning of $124 have been passed. Next week packers will be buying for a full kill week for the first full week in June and expectations are already building that whatever cash loses this week- next week will be steady at worst.
Some long-awaited and welcome news has surfaced this morning, aggressive retail beef features for Memorial Day weekend are being spotted in Denver, Omaha and elsewhere, including ground beef features under $2.00/pound. With retail prices the lowest in literally years, that ought to empty some shelves. Rainy weather forecasts hopefully will not interfere.
Boxed beef prices are declining this week as expected but packer margins are still black because of the packers’ ability to buy cattle cheaper and stay ahead of the boxed beef decline. This week’s kill is estimated at 585k-590k, boosted by a big Saturday kill, a positive.
Technically, today’s consolidating action has done nothing to improve the look of the charts. Certainly, the chart suggests a test of the April lows is possible if not probable, with the looming question as to whether that level holds or not. On the spot chart, taking out $114.90 sets up a look at a 2012 low of $112.22, though it could be the Aug LC that checks that in July, leaving the Jun LC in the clear. A big gap above Monday’s high seems unfillable this week, as the basis refuses to budge much under $7.
The underlying negative pull of a bearish futures bias continues to dominate. The substantial number of cattle placed against second half of July through September stands out in the distance as a source of real supply concern and continues to overshadow the progress the industry has made in lowering carcass weights below year ago levels. Futures may not loosen their bearish grip until that timeframe is much closer than it is today, muting good news and any rallies it brings. The more current the industry is when it gets there the better and the better chance that the reality will turn out to be less negative than feared.