Posted On: 05/31/2016
By Gary Lark
As far as the cattle bulls are concerned this is a tune and experience that feels long overdue. Last Thursday the futures reversed from what looked like another crash to new lows was in the making. Each reversal for the last year has held out promise that the 2014 price levels were not a flash in the pan, yet subsequent reality has always dashed those hopes. The Thursday turn once again stirs hope that this technical sign is a harbinger that a change in fortune is in the air. Futures added a bit on Friday, but volume was light and OI fell.
This morning a strong start held further promise, but there is a growing history of â€œfailure to maintainâ€ gains through the end of a trading session. The 100 day moving averages have proven to be the ceiling to most rallies. We are again within sight of these levels.
The fundamentals, both directly related to cattle and to the financial world at large, are much more supportive than they were during the 4th quarter of 2015. Consumer spending was reported this morning to be up the most in seven years. The S&P stock index is a â€œchip shotâ€ from all-time highs. The Goldman Sachs Commodity Index is near year ago levels. Many disgruntled cattle traders brush this aside after seeing good news of this nature not matter, while similar news of a negative sort seems to impact the market. Vexing issues remain. Cattle weights will once again grow seasonally and 50s, 90s, grinds, and hides remain drags on the market. The advance in the cut-out has been uneven. The export/import balance has been on a path toward steady improvement. The choice/select spread has moved out over 20.00, which is almost twice the five-year average for this time period.
At the moment we will be focusing on the holiday weekend clearance and how that impacts the immediate supply/demand profile. The talk I hear is mixed. Most say â€œaverageâ€ other hint at better than average. The weather in Chicago was ideal and East was generally good. Itâ€™s a short kill week and the buy is for a full schedule next week. Talk is that this weekâ€™s effort will be around 530K.
This Friday the June Cattle options expire and next Monday is first notice day. Without a major basis shift, delivery seems unlikely.