Not All That Simple

By Cassie Fish,

The best laid intentions don’t always work out. After picking up some fed cattle purchases at cheaper money yesterday in Kansas, the negotiated fed cattle trade began to strengthen, especially in the north. By early afternoon, cash trades of $117, steady with last week and then $118 were reported and even with the higher money, packers did not get fully covered everywhere.

Today, packers have renewed their resolve to hold yet another line and bids above $118 and $188 dressed have yet to surface. Packers may roll the dice and wait until next week, rather than pushing any harder today.

The interesting part of yesterday’s action is the why. Those that have been around this business understand only one explanation is feasible which is that fed cattle supplies, especially in the north, are still quite current relative to the pace of fed cattle slaughter. Perhaps, a few astute observers have commented, the industry is even more current than perceived. This assertion cannot be proved however other than with more time.

CME cattle futures did not sell off to new lows when cash traded weaker, instead, the market gained ground and by the end of the day had closed up as much as triple digits. Could the adage, futures bottom first, then cash then boxes be in play? There is certainly seasonal support for this possibility.

Technically the market is in great position to stage a rally and many contract months have risen back into the gap area left after the July 21 USDA Cattle on Feed report. Impressively, almost every contract month in fats and feeders have posted an outside week and are higher on the week. Only Aug LC, which faces continued liquidation ahead of options expiration and First Notice Day, has yet to eclipse last week’s high. And it is noteworthy that the market rejected the $111-112 area. Most active Oct LC held its June low while spot Aug LC traded the lowest since late April. Feeders didn’t even come close to the June low before they barreled higher.

Whether the market just scored its Q3 low this week or whether it will revisit those lows in September, or make new ones which is believed by some, is the primary topic of market conversations.

If the fundamentals allow this market to continue to act better than expectations, then the answer to that question is obvious. This market has faced increased supplies all year with increased demand. Whether for the ribeye, the fed animal or feeder cattle, there is an eagerness to absorb the increase supply fueled by profitability throughout the supply chain over an extended timeframe.

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