Leaking Lower

By Cassie Fish, http://cassandrafish.com

The malaise that dominated the cattle market last week is still casting its shadow today. After a couple of early attempts at green on the day, the first four live cattle futures contracts have slowly slid to new lows for the move.

Cattle traders remember well the fall bear debacles of the last two years and the fact that the market is oversold and discount to the cash fed cattle market are neither good enough reasons to buy futures. If a trader can’t sell it here, the safe move is to retreat to the sidelines and wait.

Last Friday’s Commitment of Traders report did give a glimpse into who did buy and sell the market as of last Tuesday’s close. Commercials covered a ton of shorts while managed funds liquidated longs and began to build a short position. Of course overall, total open interest keeps falling along with the market, with most active Oct now down almost 20k in 6 trading days.

It’ll be a couple of weeks before we get the final numbers but last week’s estimated slaughter and beef production were the largest of 2017, clocking in at 641k kill and the remainder of August are expected to see similar production. Last week’s +125k head negotiated trade volume at lower money is in the cue. August may well end up with the largest beef production month potentially of any August since 2011 and this large supply will keep a lid on cutout prices as this large supply makes its way through the system to the consumer.

Retail beef prices will likely become even more competitive. Last August, average retail beef prices had just dipped under $6 per pound for the first time in months and it was October before they really dropped hard. So as bearish as some are, cheaper retail prices in 2017 will keep product moving without drastically lower wholesale prices being necessary.

In short, last year the market had to seek a price level low enough to clear the backlog in fed cattle supplies and reignite beef demand- and it did. This year, fed cattle marketings are current and wholesale boxed beef prices are attractive to end users who have continued to feature beef much of this year and packer 2017 margins are exceptionally profitable. Perhaps the need for sharply lower prices this fall is not necessary, regardless of the fear that they are.

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