Posted On: 06/20/2016
By Cassie Fish, http://cassandrafish.com
The path of least resistance in CME cattle futures continues to be down as limit losses were posted this morning by 10:15 am. Talk circulated of a $115 cash trade to a major packer this morning in the north, already lower than last week’s big drop.
The market continues its Jekyll and Hyde existence. Good news is still plentiful. Last week’s 603k slaughter was the largest since June 2014 and this week is expected to be 600k, aided by exceptional packer profit margins. Weekend clearance of beef was good to very good and boxed beef inventories at the packer level are in good shape too. The cutout will seasonally soften this week, down $5-7 possibly, wholly anticipated.
On the cattle selling side, the cattle feeder was not able to entirely clean up showlists last week as it was difficult to trade volume at any given price, as the market literally traded at least seven different price points as bids were lowered, sometimes hourly. It is not a stretch that with such a big kill last week and this week coupled with a 5-area negotiated cash trade volume of a mere 48k head, that the packer will be forced to buy big volume this week and a significant transfer of ownership from feeder to packer is imminent.
Cash Cattle Price Outlook
Last week 5-area average steer prices were $120.62, the lowest of 2016 and the lowest since the market bottomed in December. This week could see prices decline and test the December 2015 low of $116.64. Last week’s cash price was the lowest for that particular calendar week since 2012 when prices averaged $119.52. In 2012, the summer cash lows came the third week in July at $112.90, and the support on the long-term weekly cash chart is $113-116. To find support below that, one must look all the way back to 2011.
The dramatic decline in cash prices in recent weeks seems to be the combination of multiple factors including: bearish market psychology reflected in futures both price and action; the desire of cattle feeders to “get in front” of seasonal summer weakness, greater supplies and take advantage of the still attractive basis; extreme equity pressures on the cattle feeder; and perhaps the growing realization that the redistribution of dollars from the cattle producer to the packing sector will prove to be extremely difficult to recover. Packers are able to effectively leverage their formula, forward contract and company cattle supplies, which stand at around 80% of their total needs, especially during times of growing supplies.