Hitting Bids

By Cassie Fish, http://cassandrafish.com

Cattle feeders are aggressively selling cattle today at new lows for the year, many determined to capture shrinking profits and stay current on marketings. Trade today has occurred from $114-115.50 and $185 dressed. The last time fed cattle prices were this low was December 2016, which is also the last time spot live cattle futures were this low.

Cheaper cattle costs ought to keep kills big and big kills require aggressive pricing to move through the system. This week kill expectations are 638-645k. This August is shaping up as one of the very few that may see no cutout rally at all, as moving what may well be the largest beef production of the year this month as well as the largest August beef production in 5-6 years is more important than price. The production surge is due to peak available supplies of cattle not carcass weight, a saving grace.

Instead of seasonal strength, the cutout may sag sub-$200- not seen since February 2017. Last year this week, the cutout was $200.54 and going back to the years of similar beef production like 2013, the cutout was in the $180s-190s for August. When examined from this perspective, it’s a reminder that excellent domestic and export beef demand in 2017 has resulted in robust prices.

Another saving grace are the aggressive retail beef features this week, choice ribeyes for $6.77 per pound and ground chuck from $1.99 to $2.48 per pound. Though August is a month involving lots of travel and is not known as a stellar beef month, at least the retailer is keeping attractive beef prices in front of the consumer that compete well against pork and poultry.

This week’s darkly bearish cash market tone has pushed CME cattle futures lower, but not limit down. Live cattle futures lost another 6.1k of open interest yesterday as the orderly liquidation continues. Futures are $5 lower on the week while cash will probably average close to $3 lower. Today at least, is a ‘cash weaker than futures’ day, as futures retreat to levels seen in April and Aug, Oct and Dec LC below the trading range carved out over the past few months.

Feeder cattle futures are finally losing to fats again, down $7 on the week, but many contracts are still above their June low. There are many who need to buy cash feeders and for those who haven’t paid the higher feeder prices the last few weeks, lower cash feeders would be a welcome by-product of this bearish downturn.

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