More Chop

By Cassie Fish, http://cassandrafish.com

The sideways churn in CME cattle futures continues this fourth day of this week. Only those who are buying weakness then selling out on strength are ahead of the trading game, as this market seems relatively content in this current range. Given what is known about supply and seasonals, the market seems fairly well priced, though arguments about spread relationships are easy to have.

Technically, this week’s lows established Tuesday now stand out as important support and feel further away than they are, just a couple of hundred points beneath the market. Most active Dec LC has also gotten quite cozy with its 100-day and 10-day moving averages, trading near them both for days, this tidy range in place or 2 weeks.

There are still some Q4 bears around, though there seems to be fewer of them. Complaints about increasing numbers of ‘big and fat cattle’ have become more vocal as carcass weights approach their final 6-7 weeks of seasonal increase. Today’s USDA data showed no change over last week and steer carcasses are 7 pounds below a year ago, averaging 897 pounds for week ended September 23.

The actual fed kill for that week came just under 510k, yet one more week contributing to now multiple, consecutive months of +500 head fed kills, 15 weeks in all not including last week’s kill, which will likely exceed +515k. That is more +500k kills than occurred in 2013 and is proof the packing industry has been able to gradually and consistently expand and maintain production. It’s also a testament to the expansion of global and domestic beef demand. The weekly average choice cutout price for this same week in 2013 was $193.64. This week the choice cutout will average above $195, printing at $197.66 this morning.

Bids in the country have been renewed and there has been a little “if you price them I will call in” floated. But as of yet, no real action. It’s beginning to appear as if fully steady trade is most likely to develop and even higher would no longer surprise.

All in all, this may not be the most exciting trade ever observed, but the market acts pretty good in total, considering the large production level and the ability of this market to find value in the midst of it.

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