Wait and See Monday

By Cassie Fish, http://cassandrafish.com

It’s been a quiet Monday morning thus far. CME cattle futures have traded both sides in quiet action. The back end is approaching overbought status and is nearing some significant overhead. Oct and Dec LC, premium to last week’s limited cash trade, are still playing catch up technically.

The bigger question today remains unanswered. The debate around which packer needs how many and whether cash will be higher this week is really the only topic being discussed.

Two weeks ago, the negotiated fed cattle trade volume was 68k, the second lowest of the year. So, Friday afternoon, packers were forced to pay $105 live and $165 dressed to gather any numbers at all, steady with the prior week and $1-2 higher than earlier week expectations. Undoubtedly the basis change provided backbone for sellers that has been missing for months.

It’s also true packers own a lot of cattle with time, some plants covered into the week of September 25 and in general fed cattle supplies are at their peak. Packers have let their owned inventory dwindle the past 3 weeks. Last week’s trade volume tied the year for the lowest at 55k. At the very least, it would appear the downside in negotiated fed cattle prices is extremely limited until packers reloads a larger inventory position. How much the cash market could rally as packers reload is more difficult to predict. Is it possible to push cash back to $107 to $110?

Packer margins continue to be excellent and the September slaughter schedules are set. Boxed beef values have stabilized, though the upside here is limited. Anticipation of post-hurricane refill is significant, though offerings are ample. Kill estimates for the week are 630-635k, putting the fed kill near 510k or so.

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