Cash Prices Strong; Futures on the Fence

Posted On:  7/01/2016

By Cassie Fish, http://cassandrafish.com

Indeed, short bought packers “got after it” yesterday and cash prices were $5-6 higher on good to excellent volume. Bids are still in play at steady money indicating a willingness of packers to extend inventory at the higher price levels. It feels like a sizeable transfer of ownership took place but it’s a little early to get the official USDA tally.

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Why are packers scrambling? The main reason is the industry has slaughtered over 300,000 more fed cattle YTD than for the same timeframe in 2015.

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The good news here is also that the increase in beef demand has pushed wholesale prices to levels that have inspired the best retail beef features in years, resulting in renewed consumer beef buying.

Cattle feeders have done an excellent job selling cattle and as a result, the industry is hitting the dreaded third quarter of 2016 dramatically more current than one year ago. Undoubtedly, some July cattle slated for July have already been slaughtered. Though it is also true that cattle performance has been stellar and some cattle have beat their out-dates by days if not weeks.

         Futures Totter

CME cattle futures led the up this week but now that the good news is reality, retreat has begun. Stalling out at key overhead moving averages, Aug LC is leading the down. Today’s low thus far of $114.07 is near the spot LC low of $113.72 made by just expired Jun LC. Jun ended its run in the middle of a 3-month-long trading range, expiring just under its 40-day moving average. Yesterday’s open interest showed a big decline in Aug and an increase in Oct and Dec, indicating pre-roll is likely underway.

There is growing optimism among many that both cash cattle and futures carved out a bottom in June. What’s also true is that June saw the best beef news in a very very long time. Still, a seasonal downtrend in July is normal. The degree of the downtrend will have a lot to say about whether 2016 was a “June bottom year” or not. Since June bottoms only come along 22% of the time, today futures, most comfortable with a sizeable discount, aren’t willing to bet on it.

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