Posted On: 05/27/2016
By Cassie Fish, http://cassandrafish.com
CME cattle futures have continued the rally begun yesterday, stopping at overhead, closely watched moving averages and short of last Friday’s close. Today’s performance so far has been encouraging but not yet entirely conclusive that yesterday’s impressive rally is for real.
In the country, packer bids have been renewed and in some instances upped bids a buck this morning from yesterday’s $125, rumored to have moved some cattle at $126. With black margins and peak beef demand seasonally, cattle still work even if the packer has to give up a little margin. It certainly seems as if cash prices will end up recovering some of the mid-week loses, even if cheaper than last week.
More importantly are expectations of more cash price improvement next week. If retail beef clearance over the weekend is active, then packers might even be able to get some money back on a cutout that has lost $7-10 this week on choice and select respectively.
June is typically a transitional month. Memorial Day weekend and Father’s Day features dominate the first half before the attention shifts to the burger and hot dog portion of the summer, July 4th and beyond. The rib and especially the loin primals were largely responsible for the nice rally the cutout just had and cuts from those same primals seasonally soften as summer comes.
The lackluster performance of the chuck and round since January has done the cutout no favors which is why increasing ground beef demand this summer at competitive prices against pork and poultry is crucial to the ends finding some footing. Both took out the December low in May and another round of lows there could put pressure on the cutout and packer margins during July a time when cattle supplies are expected to increase.
Keeping kills up (this week is estimated at 590k), weights coming down and currentness improving are all also just a critical to how the market will weather the mid-June to August time frame. Other factors are helping such as better exports, lower imports, lower beef in cold storage. Still, the muted nature of the 2016 rallies in the midst of improving fundamentals could well be a signal that price vulnerability is still in play and continued improving fundamentals necessary as the market heads into the final month of Q2 and looks ahead to Q3.
Note: Next week, The Beef will be written by guest blogger and +40 year cattle trading veteran Gary Lark, as I take a few days off. I’ll be back June 6. Here’s wishing everyone a safe and enjoyable holiday weekend. Sending out a big thank you to all those who have chosen to generously serve and sacrifice for others on this Memorial Day weekend in the U.S..