By Cassie Fish, http://cassandrafish.com
Negotiated cash cattle prices posted a $1-2 gain Friday afternoon, topping at $110.50 in western Nebraska. CME live cattle futures have answered this morning with a push to new highs for the move with spot Oct LC in the lead.
This morning Oct LC checked the high it made Sep 22 at $111.82, just shy of its 100-day moving average at $112.30. This would be the closest the Oct has come to its 100-day since early August, when the final leg of the Q3 downtrend got underway.
Technically for Oct LC, a 50% retracement of the Q2 high to the Q3 low isn’t far away at $113.57. There is a downtrend line coming off the June and July highs that stands between the 100-day and a 50% retracement, raising questions as to whether Oct will stall out soon or if Oct can still fill the gap left after the July Cattle-on-Feed report at $116.85- something all other cattle contract months have been able to accomplish.
On the summer break, the cash trade left a monster gap between $115 and $110 that cash values look ready to fill between now and early December, buoyed by the seasonal and a modest decline in fed supplies. It’s already obvious that northern numbers are in decline and though supplies in the south are ample, the excessively wet weather has cattle uncharacteristically tired and muddy for October. Even cow runs have been impacted.
In contrast to Oct LC and cash prices, the fund-fueled rally of feeders and back month fats seems to have run out of steam momentarily, allowing the extreme levels reached in the premiums over Oct LC to finally contract a bit. Oct LC open interest took one final huge drop with option expiration Friday and now stands at a tiny 18k for its remaining 3 weeks, smaller than all but Aug LC. Such is the way of the cattle contract now, beleaguered by fund roll and position come-down, as the constraints of the limitations of physical delivery and the related rules and regulations take their toll and make each spot month a mere shadow of what it once was.
Looking ahead to this week, kill expectations are 628k to 638k, cutout values steady a couple of bucks lower as the end primals weaken seasonally and cash cattle prices likely fully steady, to possibly stronger in the north.