Optimism Keeps Bubbling

Posted On:  06/27/2016

By Cassie Fish, http://cassandrafish.com

CME cattle futures are posting triple digit gains this morning and holding gains, buoyed by growing optimism that the worst might be over for cash fed cattle prices, if not already than certainly by August 1. There is also growing confidence cattle futures may have bottomed last Monday when, most active Aug LC reached $109.57 and that the basis will continue to narrow going forward.

Friday’s USDA Cattle-on-Feed report was neutral, hitting analysts’ pre-report estimates on the nose and confirming that front-end cattle supplies have indeed been cleaned up in 2016 by the brisk slaughter pace that began in March.

Some of the logic behind anticipating “the bottom” is that record-wide packer margins (getting even mainstream commodity market coverage now) will narrow up some as packers compete to buy more negotiated cattle in July- since forward contract supplies are smaller than a year ago.

Last Friday afternoon, one major packer who prefers to stay shorter-bought than others, had pushed Printdressed bids up to $190 from $186, drawing a few cattle along the way. There is optimism that the feeder will be able to force the packer’s hand further this week in spite of it being the proverbial ‘long week buying for the short week’. The industry ended up trading 89k cattle last week -more than it felt like- at prices mostly in the $117-118 area, lumping dressed and live together, reaching the lowest fed cash price since December 2015.

Last week’s kill at 608k was 1k higher than the prior week but below late week estimates of 610k-615k. This week is estimated to be 608k, continuing the trend of big weekly increases over a year ago.

Boxes are expected to seasonally edge lower again this week and a bottom there is not predicted for another three to four weeks. The still weak link in the carcass is the round, which made a new low for 2016 last week and is below the 5-year average.

It appears July will be a key month. The extent of the cutout decline, the willingness of packers to give some margin back to the cattle feeders, kill levels- those are the fundamentals that will have influence on where cash fed cattle prices end up. Then there is the timing of the fed cattle basis change, also as important.

There is a rumor this morning that a major cattle feeder sold cattle out front for July delivery at $118, which seems to be read by the market as neutral. Perhaps the market is finally finding some long-yearned-for stability.
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