Falling Short

By Cassie Fish, http://cassandrafish.com

Last week’s kill came in at 622k, 10k short of most expectations. Obviously, one major packer did pull Saturday kill at two plants, as had been rumored. Since the cattle feeding industry is amid its largest market-ready supply, any week the fed kill drops below 510k is killing too few to fully maintain front-end currentness. This is not good news as the next 60 days sees top-notch cattle feeding performance and a seasonal increase in carcass weights and the number of yield grade 4s and 5s.

The cutout ended the week on its lows Friday, the lowest weekly cutout average for that week in 5 years at 191.65 for choice and the choice/select spread near even. This week’s cutout is expected to erode another $2. This week’s holiday-reduced kill is estimated from 550k-569k compared to last year’s small 529k.

Optimists are calling this week’s cash market steady as packers buy for a full kill week next week. But also well known is that some packers already own cattle for specific plants well through September and are buying for the last week of this month. After all, the cash market has already declined 27% from its Q2 high, so a slowing of the decline is reasonable. Cash cattle prices last week were the lowest for that week since 2010. Last fall, cash prices bottomed in October at $97 and there is concern that price will be revisited this year. But unlike the last 2 years, it is cash leading the market lower, not futures.

CME cattle futures have traded both sides today but the market behavior maintains its consistency- Oct LC is sloppy and the bear spreads continue to widen. Apr LC is nearly $10 premium to the low end of last week’s cash price range.

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