By Cassie Fish, http://cassandrafish.com
It’s early September and cattle traders are wondering if the 27% break in cash cattle prices achieved last week since the Q2 high is enough. This year’s cash break isn’t as large as the last two years, nor the late 2003/early 2004 decline, but it is substantial. CME cattle futures seem to like holding the $104-105 area in Oct, long an important support area and the deferred contracts are adding to their premium. Optimism isn’t commonplace yet, but some at least are wondering if perhaps the worst is over.
The roll of managed and index fund positions from Oct to Dec and Feb LC is in full force and all but Oct LC are trading higher on the week. Oct is trading just above its low for the move of $104.30 and Aug LC’s spot low of $104.05.
The market and its players want to be friendly this week. One source of positive news has been the USDA Comprehensive Boxed Beef report for the last two weeks showing huge sales, many out-front, as end users scoop up bargains for Q4. Demand seems to be holding together well.
Another potential positive was last week’s relatively small negotiated fed cattle buy of 68k, which could intimate that packers will need to purchase more cattle this week, causing the market to be steady or even slightly higher. Though cash bids have started at $102 south and $163 north, $2-3 lower than last week and packers are generally buying for the week of September 18, so disappointment here could still be in the making.
September and October are the two months when carcass weights see the greatest week over week gains. Feeding weather is perfect. The fed kills in September and October may well exceed 500k head per week and beef production will remain large, so continued good demand is critical, as is not creating any backlog in fed supplies.
From a cattle feeding perspective, Dec LC is advertising better days to come, so some cattle feeders may be enticed to feed cattle longer and hit the November marketing window, while avoiding the next 60 days, which could extend greater supply well into Q4. It seems worth serious consideration that if maintained, the futures market premium will draw cattle to those time frames, compromising currentness and adding tonnage over time.