Posted On: 06/21/2016
By Cassie Fish, http://cassandrafish.com
Turn-around Tuesday hopes abound today now that CME cattle futures have reached oversold levels after posting contract lows yesterday. An early rally, led by feeders, has already faded but there is danger in pressing futures down here. Seven of the last eight trading days have seen lower closes and most actively traded Aug LC has lost almost $10 in the same period and is $10 below last week’s 5-area average price.
Given that so much of the fundamental news continues to support thoughts of a bottom, many continue in a state of bafflement as to the futures market continued disregard for the same.
Yesterday’s USDA Comprehensive Boxed Beef report showed brisk movement, especially in the 22+ window, supporting belief that beef demand to the consumer is excellent, likely the best in years. Last week’s kill, revised up to 607k and the big kills in general of 2016 have been absorbed handily. Less imports to compete has helped as has less cold storage stocks but cheaper retail prices have probably carried the most weight.
There are hopes that last week’s tiny negotiated trade will inspire at least steady prices and bigger volume this week. Those hopes are colored by a large dose of fear however, as the packers hand never seems to be forced regardless of whether he is short bought. Tomorrow’s new fed cattle auction thus far has been more of a downer than an upper as far as market psychology goes.
Unfortunately for those fatigued by the seemingly endless futures downtrend (and their numbers are many), it is as if the market refuses to bottom until all hopes of one are extinguished. The arguments regarding the discount, algorithmic trading, and broken futures contract haven’t stopped the market, as it appears to be on the cusp of the lowest prices in years.
Boxes will continue to soften seasonally for at least another month and kills will stay large as long as black packer margins and beef demand support them, a long-term positive fundamental. However, maybe the market needs uniformly bearish news before it can finally relent from anticipating it, and that may take a while.