Nothing But Erosion

Posted On: 06/15/2016

By Cassie Fish,

Lallemand Micro-CellCattle futures trade as if any remaining longs have thrown up their hands and walked away. The greatly improved fundamentals in 2016 from 2015 and continued sharply discount futures price structure may have in days past, enticed shorts to cover and bulls to give buying the market one more try. Today (though futures have yet to take out yesterday’s low as of yet) the current +100 point losses telegraph nothing if not a confirmation that connection between futures and cash seems no more than a thread. It is as if futures cannot begin a sustainable rally until every shred of thoughts of a “bottom” have been wiped out.

Then there is this week’s fed cattle trade. There has rarely been a time of such contrast in the cattle business. Today, the small fat cattle auction in Tama, Iowa saw cattle bring from $129-134, $1-6 higher than last week’s negotiated trade. Minutes later this morning, the new fed cattle on-line auction saw cattle bring $122.25-124, $4-5 lower than last week’s negotiated trade. Yesterday in Wyoming, 3k steers and heifers sold for $125 to a major packer, $3 lower than a week ago. The only ultimate determinant of this week’s fed cattle value will be wherever volume trade occurs. Still the incredibly wide price spread for fed cattle prices in 24 hours is mind boggling for anyone who has been around this business and for some, disturbing.

The slow, agonizing price erosion in futures prices today is mirroring the erosion of resolve in the cattle feeding industry this week, or vice versa. Talk of excellent beef features for Father’s Day (of which there are many), record packer profit margins, big kills, and record-high wholesale prices on some middle meat cuts for this time of year- none of this is translating to any gained advantage for cattle feeders nor any upticks in futures.

Rather than fundamentals or technical, today seems dominated primarily by the erosion of confidence in the legitimacy and functionality of the market itself.

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