Posted on: 5/16/2017
By Cassie Fish, http://cassandrafish.com
The dramatic turn of events the last 2 weeks have left many in the beef industry a bit shell shocked. The velocity of the rally took most by surprise and the steep and relentless nature of the current cash cattle and futures break is having a similar effect. Friday’s ‘gift’ rally now seems like a dream.
End users haven’t been let out of the trap yet, as the choice cutout value was pressed to new highs yet again today, ringing the bell at $250. Only those with no other choice are buying any product now as all are aware prices will come tumbling down soon.
It will be a long time until the cutout bottoms following a rammed and jammed rally like this one that will make the Q2 top. The rib primal and beef 50s have reached their highest prices ever in history. Talk on the street is that pork business is booming and beef will pay the price dearly this summer. Beef’s turn in the “preferred” seat is over for now and it could prove to be a long, long summer.
About two-thirds of the time the cutout bottoms in Q3 the rest of the time in Q4. Since people tend to have short memories, it is easy to recall the enormous, record-making cutout breaks of 2015 and 2016 that took until Q4 to end.
Today’s lighter carcass weights and current market-ready fed cattle supplies ought to provide some positive balance to the seasonal decline in cattle and beef prices now upon this market. This makes slaughter levels and carcass weights the two most important fundamental factors to watch carefully this summer, to attempt to gauge the degree and duration of the decline.
Going forward, the market will be battling the loss of the large sold-ahead position that laid the groundwork for the great rally that just expired. Instead, the wholesale beef market will be forced to clear its volume more in the spot and formula market and because prices are so high, volumes will be constricted. This has been very evident in the USDA Comprehensive Boxed Beef report issued the past two Mondays.
It is stating the obvious that it will take cheaper prices to find beef demand again. How long and how low are unanswerable today. Cattle feeders will chase basis to stay in the front of the decline and the live cattle futures market, burdened with a record long fund position, will lead the parade lower.