Cash Trade Done; Futures Consolidate

Posted on:  1/05/2017

By Cassie Fish, http://cassandrafish.com

Yesterday afternoon saw the bulk of this week’s negotiated cash cattle trade occur, with prices as high as $118, steady with last week. All in all, the market ended up stronger than expected, even though all packers were not aggressive in replenishing inventory, an indication supplies have tightened, especially in the north.

December 2016 fed cattle slaughter ended up 9.7% larger than December 2015, remarkable in size and the fact that the market rallied most of that month in the face of larger production- proving beef demand is on the rise. January typically sees retailers replenish their meat case with a post-holiday mix and features this week have included chicken, pork and beef. But by all accounts, beef has finally earned its way back into ad space and consumer carts and lots of product has been absorbed.

This week, boxed beef values have climbed modestly, as the end primals level out and the rib finally finds a toe hold. Beef 50s have put on money this week as anticipated.

This better cash cattle market performance brought the downside correction in CME cattle futures to a halt yesterday, spot Feb LC rallying back 235 points of the 420 points lost since last Friday’s high. Today the market managed to make a new high for the week, though the tempo of the trade is quietly higher and very near the settlements of the last 2 Fridays. In fact, the market has spent a great deal of time between $115 and $117 as of late and seems in no hurry to do otherwise.

Open interest and volume this week have not been a source of much excitement either, leaving traders looking for more action forced to be patient.

This week’s slaughter is expected to be 545k and next week back towards a ‘normal’ 590k-600k. At this point, January slaughter levels are not expected to exceed 600k by much, if at all, until May, so there will be less beef offered to end users the next 4 months than the prior 4 months, though beef production could exceed 2016 levels 2-3%, depending on carcass weights.

Speaking of carcass weights, USDA just released the carcass data from the week ended December 24, showed the first signs of bullishness- steers down 9 pounds from a year ago and 11 pounds from a week ago.

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