Posted On: 05/19/2017
By Cassie Fish, http://cassandrafish.com
CME cattle futures made their high for the week on Monday and their low for the week on Tuesday and have spent the week since clawing back to the 10-day moving average. Most active Aug, which has continued to grow in open interest this week, is the most buoyant, regaining ground on the deferred contracts as well as spot Jun.
There seems to be no fundamental reason for Aug LC’s strength and at only $3 back of Jun and premium to Oct and Dec, it is a bit of mystery why Aug is favored as much as it is. Of course, the managed fund money is concentrated there as well as many short legs of spreads. But heavy placements against August and September the last several weeks insure there will be a significant increase in fed cattle supplies during that timeframe.
Beef demand seasonally slows in July and August and carcass weights seasonally increase, both additional factors indicating fed cattle prices will be well into their seasonal decline by then.
Logic says that Jun LC, not Aug LC, will benefit from cash cattle prices declining slowly rather than rapidly over the next 6 weeks because of the front-end currentness in feedyards. But money flow appears to be having its own influence. Some may want to give the anticipation of U.S. beef exports opening up to China in July credit for Aug LC strength, but expectations are that China will require various sorts of ‘verifications’ on any exports accepted, which may limit volume. The China impact is between perception and reality right now.
There were issues at a couple of plants yesterday reducing volume but tomorrow’s kill will be sizeable. Packers are in midst of filling orders booked weeks ago. Kill will be around 606-612k. Boxes next week will print lower, the only thing in question is the how much and how fast will they go down. That varies depending on who you ask.
Next week packers will be buying for a short kill week, but given that this week’s trade volume wasn’t huge, many will be looking for a steady go after two weeks of decline.