Posted on: 1/04/2017
By Cassie Fish, http://cassandrafish.com
For some reason, be it basis or assuming a 20% rally in fed cash cattle prices off the bottom is enough or other reasons- a few cattle feeders tripped cattle yesterday at $116-116.50 and again today, below last week’s $118 top. Packers quickly bid $116 this morning in the country to attempt to buy more, while at 10 a.m., the Fed Cattle Exchange saw cattle bring as much as $117, which surprised some observers. It appears despite cattle feeders’ best attempt to get in front of a presumed weaker market, that the market is stable just a little lower.
Bids in the north, where numbers have tightened noticeably have surfaced at $188 and below, the top end steady with last week.
Last week’s kill was revised up 3k head to 510k, and one plant ran Monday, January 2, again a testament to excellent packer margins and decent boxed beef interest. Boxes were higher at midday today and even though enthusiasm for a big up this week has waned due mostly to a still-haven’t-bottomed rib, it isn’t expected to lose any ground. Buying cattle cheaper this week has done nothing but widen packer margins.
Technically CME cattle futures continue to correct, most active Feb 307 points off last Friday’s high-for-the-move. Apr LC is gaining on everything, benefiting from the roll and any fund reallocation buying and Feb/Apr is the tightest since Dec 13, back under a buck. These forces are greater than the logic that cattle will be worth almost as much April 30 as Feb 28.
The better-than-expected cash news has caused several minor intra-day rallies in a generally quiet trade. Some analysts think that Dec LC may have pegged the spot high for the entire up last Friday at $123.70, the highest spot price since June 2016, and Feb will be challenged to best that level. No doubt, that area up to $125 offers substantial overhead resistance, both for futures and cash.
It will be the confluence of seasonally smaller Q1 supplies and yet undetermined consumer beef demand during the same time frame that will inform what the market can and can’t achieve. With packers continuing to enjoy robust black ink, if beef demand continues to be brisk as it was in Q4 (even if seasonally softening some) then packer demand for cattle will likely continue to be good too, or at the very least stable. Futures have the caution light on, with each month discount to this week’s cash. So it will be up to cash market price discovery to determine real value.