Stronger Cash Prices Surprise

Posted on:  02/17/2017

By Cassie Fish, http://cassandrafish.com

A little bit of cash trade late Thursday at $119-120 caught some attention and was followed swiftly this morning with more of the same, $119-120- bettering the FCE on Wednesday and exceeding early week expectations. As hinted by Monday’s USDA report on negotiated, committed and delivered report, packers did lose some live inventory position and as are result, were more aggressive today than thought buying cattle. Trade is still occurring and even eastern Nebraska is strong at $190 with some passing.

This week’s stronger-than-expected fed cattle prices are a testament to the current tight supply of market-ready cattle. More and more green cattle are surfacing on the showlists weekly. Cattle feeders are making money and liking the basis and will keep cattle moving.

The packer continues to pick up good out-front beef sales which in turn, inspires keeping kills as large as possible given the tight supplies, even with spot margins less than desirable. With the seasonal low in boxes likely in place, modest price appreciation is expected, with the middles slowly moving higher out of their lows for the year thus far.

CME cattle futures have been reluctant to follow this better news and only just made new highs for the week. All contracts are higher on the week too, as the market conservatively grinds upward. In most active Apr LC, $115.72-80 stand out as key overhead resistance.

The technical indicators do show the market has plenty of room to rally before becoming overbought. If cash prices are higher again next week, then Apr LC futures could push back above the 40-day moving average and take another look at the unfilled gap between $116.65 and $116.75 left on the last rally. If the market could close above the $116.65 high, then upward momentum will build.

Fundamentally, March, less than 2 weeks away, can be a seasonally-strong potential powder keg for cash fed cattle prices. The confluence of tight cattle supplies and slowly improving seasonal beef demand makes March and early April the timing of more highs in the cattle market than any other.

No doubt, the live is the drive between now and the spring high and futures will follow its lead. With steer carcass weights, reported yesterday for week ended February 4, 11 pounds under a year ago, lighter carcasses are offsetting some of this year’s bigger kills. This powerful underlying fundamental will remain in play until May.

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