By Cassie Fish, http://cassandrafish.com
CME cattle futures, defying lackluster cash news, have bolted higher today and every contract is higher on the week. Oct and Dec LC have yet to take out last week’s highs, but today’s powerful rally is impressive, with Oct finally gaining back some ground on the spreads. Oct LC is nearly $3 above last week’s cash trade and $4 above the highest cash bid yet this week.
Front-end cattle futures had been in a steep downtrend since the week of August 7 and obviously got cheap enough, holding the $104 area. Whether this is a sustainable rally is the more important question and it will depend a great deal on what kind of rally can be generated in the negotiated cash trade.
The cash trade has been sluggish for weeks and packers own a great many cattle out-front, allowing them to pick and choose and forcing feedyards to carry cattle over from one week to the next. Today’s futures rally has not yet resulted in steady bids with last week, let alone higher as packers have sat through other grease-fire rallies that have failed only to ultimately scoop up cattle cheaper later. There’s no way to know whether this time will be different yet. It is true that last week’s negotiated volume was the second smallest of 2017 and logic would say packers will need to step in soon.
Anticipation of post-hurricane fill-in beef business for south Texas is providing some support in boxes and the talk is that boxes have finally bottomed. Though with beef production well over a year ago, the upside in the cutout is thought to be limited and the seasonal would indicate the same.
Packer profit margins are north of $150 per head though, so it’s thought kills will continue to run over 500k fed per week through September, which ought to prevent a further loss in currentness. Some good news, the fed kill, the week ended August 26 was the largest of 2017 at 518k, making up some for some disappointing kills in late July and August. This week’s holiday-reduced total kill is estimated at 550-550k, 20k-25k over a year ago.
At the same time, reports of increasing weights and resulting YG 4s and 5s are more common all the time. Carcass weights from 2 weeks ago increased 3 pounds WOW and are still 9 pounds below YOY.
Today’s rally is a welcome sight for cattle feeders and futures bottom-pickers and bull spreaders. A weekly close tomorrow above last week’s high of $109.75 would shock, but would insure a technical bottom. Less than that, Oct will post an inside week with a higher close following last week’s outside week with a lower close, leaving a lot of room for interpretation as to whether the low is in- or not.