Fundamentals Hanging On

Posted On:  06/08/2016

By Cassie Fish,

A few northern packing plants need some cattle for this week’s kill and there has been a trickle of trade near last week’s weighted dressed average of $205.73. Mostly in Iowa, trade has been picked up from $202 to $206 with interest on high quality cattle noted by smaller players at $206. Majors are bidding $203.Lallemand Banner

The beef cutout is still holding together too, with the choice the highest since May 20, up $2.93 from a week ago, as the loin and beef 50s show the most strength this week. The fact that the cutout is still holding together well in early June is both an encouraging sign of good demand and translating to more optimism for beef prices over the summer.

This continuation of solid fundamental news into mid-week seems to have yanked sharply discount CME cattle futures back the brink of another sell-off, the market trading perilously close to Monday’s low. LC has gone nicely green on the day with most active Aug now over 200 points off the earlier session low. Futures are bobbing and weaving around the 40-day moving average as if it is meaningless. In order for LC futures to mount a truly convincing rally, yesterday’s high of $117.85 must first be eclipsed.

Feeder cattle futures were throttled earlier by the big rally in corn today- as corn reaches the highest level since July 2015- but have managed to rally back to steady. Cash feeders have been stronger this week as runs seasonally decline and the index has edged back above $150 on the daily. Optimism is still alive and well it appears in spite of the bleak outlook portended by cattle futures prices.Print

The vast spread between cash and futures has become the norm. There always seems to be plenty of time for convergence to occur in the last couple of days while in the meantime, futures can comfortably trade $7-8 below last week’s 5-area average price with the advantage skewed entirely to the short hedger. After all, Jun LC expire in 3 weeks and 1 day but delivery can take place into the week of July 4th, a seasonally weaker timeframe.

Though a long time until Friday, potentially of importance is Jun LC’s action strong today- now trading higher on the week after posting what had looked to be a huge outside week with a potential lower close. Perhaps there is one more hurrah coming for Jun LC after all.

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