Basis Edging Closer

Posted On: 06/22/16

By Cassie Fish, http://cassandrafish.com

It’s Wednesday and the cash fed cattle price for the week has been established at mostly $116 in the west and south. Eastern Nebraska and Iowa have still yet to trade with a $184 bid from a major offered. The on-line auction traded at generally the same price point and the Tama, Iowa fat cattle auction was $10 lower than last week.

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The biggest challenge selling fed cattle this week has been the lack of packer competition. Bids are few and far between with only two majors poking around, and only of them actually buying any. It appears that although last week’s negotiated trade volume was low, packers are getting cattle “turned in” to them at a rapid rate as feeders move quickly to unload inventory, filling up slaughter schedules and allowing them to pick and choose from the negotiated offerings.

CME cattle futures, on the other hand have become very whippy- selling off sharply, grease-fire rallying back only to back off once again. The result is soon-to-be gone Jun LC is only a buck discount and most active Aug LC is now a mere $4 back of Printcash. In the back of every trader’s mind is how soon Aug decides to go premium cash and take the short hedgers’ money away.

Certainly, futures had become quite oversold and the cash weakness and inspiration to cover shorts and bottom pick. The beef cutout has lost ground seasonal but is still holding together better than expected and packer margins are historically wide for any time of the year, a trend for 2016. There is growing talk that this week’s kill will be 610k-615k, 50k-55k head above a year ago, just as last week’s kill was 59k above a year ago. Remarkable.

Retail beef features showed up again this week despite Father’s Day weekend being past and included some steaks. Ground beef features near $2 a pound surfaced this week, sorely needed. The round primal, much used for grinds, made a new low for the year this week just as the middles have taken their seasonal tumble. It is key that the ends of the carcass find some improved value in July and August, as the dog days of summer keep the middles in check.

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