Posted On: Â 07/06/2016
By Cassie Fish, http://cassandrafish.com
Thus far this first week in July, CME live cattle futures are creating a well-worn path between last weekâ€™s high and low. The news still feels too good to topple the market hard, but the outlook for further out in July promises at least a challenge or two, resulting in enough of both breaks and rallies to disappoint all concerned.
Â Â Â Â Â Â Â Â Feeders Gaining; Make New Highs
Other agriculture markets are under extreme pressure, such as corn reaching the lowest level in two years and soybeans off over $1 from last monthâ€™s highs. Much cheaper corn appears to be providing support for feeder cattle futures which have taken out last weekâ€™s highs and have been gaining on live cattle futures since mid-June edging out towards levels not seen in quite a while. Aug FC has rallied almost $12 off its recent lows while Dec LC managed to gain $4.60 before backing off.
There had been a few moments in late spring and early summer when cash feeders could have been bought with a decent profit opportunity but enthusiastic feeder cattle buyers, typically light summer runs and now cheap corn, have consistently inched feeder cattle values higher in the last few weeks. This in spite of ample supplies of feeder cattle outside of feedyards. As feedyards get seasonally emptier in the summer, the incentive of boosting capacity utilization is significant.
Did feeders bottom when Aug traded down to $134.25 week before last? There is long term support from $131-133 on the spot feeder chart. It would seem that how well cash fed cattle prices fare during the Q3 will have as much impact on feeder prices as anything, especially with the compromised equity position of the cattle feeding industry.
Providing some support for feeders is growing confidence that fed cattle prices have bottomed or will soon, holding the $116-117 area that has stopped the decline 3 times in the last year. To say that this is key support is an understatement. If fed cattle prices were to fail to hold that support this quarter, feeders might check those June lows, cheap corn or no. But better beef demand, big packer profit margins and monster kills may have been enough to insure fed cattle prices do indeed, hold the line in Q3. At the very least the market now has a fighting chance to do so.
Slaughter levels are expected to stay well-elevated over a year ago in July, as much as 30-50k head per week, but are expected to moderate back under 600k per week. Packers will be watching the wholesale beef cutout value very carefully attempting to gauge the degree of seasonal weakness the remainder of this month. As of yesterday afternoonâ€™s close, the heavy choice cutout is a little more than $5 above the 2016 low for the year. The round primal finally perked up recently, up $11 in about 10 days, which has offset middle meat weakness somewhat.
The only packer bid to surface so far this week is from a regional in eastern Nebraska, bidding $4 dressed less than last weekâ€™s trade. No doubt the 112,479 head traded last week to be delivered in the next 14 days put at least some plants in better position, given that this weekâ€™s kill is expected to be 525k-535k and next week 585k-600k. Still, when this weekâ€™s cash trade gets underway, prices are expected to bring fully steady money with last weekâ€™s gains.