Posted On: 6/29/2016
By Cassie Fish, http://cassandrafish.com
CME cattle futures have made new highs for the week and are holding gains. All but most actively traded Aug LC have eclipsed last week’s highs as the market continues its technical correction begun June 20. Aug FC managed a trip back towards its 40-day moving average before backing off 100 points. Recently, volume in CME cattle futures has dropped back to levels seen decades ago and thin liquidity is one of the by-products of low volume.
Cash bids in the country are practically non-existent as most conversations center on how much higher cash will trade this week, not will it trade higher. Auctions have been steady to higher this week.
Packers are faced with eroding margins as cutout values sink as beef buyers back away from a mostly deteriorating market- very typical for July 1. The round has managed to find its feet, which will help going forward, but the primary concern has shifted to how much further the middles will fall in the next 3 weeks. A drop under $200 on the choice cutout is expected, making a new low for the year by taking out $203.74 posted in early May.
As is also well known, packer margins have been record wide and the attitude of cattle feeders is it is time to claw back some margin for themselves. Larger-than-expected kills for going on 4 months have left the cattle feeding industry in better shape inventory wise and the cattle feeder intends to apply pressure on packers who need inventory to pay up.
The packer is faced with the decision of how much inventory to purchase at higher prices while boxed beef prices are likely 3-4 weeks out from a bottom. The packers’ throttle is his production schedule and it remains to be seen if hours will be reduced in July from June levels, or not.