New Lease on Life

By Cassie Fish, http://cassandrafish.com

Finally unburdened of relentless liquidation, Oct LC market action is none short of impressive. After losing dollars to the other contracts for weeks, Oct has taken full command of this rally today, reaching the highest point seen since August 7, surging above the 100-day moving average and taking out a major downtrend line. Filling the gap at $116.05 doesn’t appear a far-fetched notion now.

Maybe it’s the cold, wet weather and muddy yard conditions stretching across much of cattle feeding country or the premium futures market structure. Or the fact that market-ready fed cattle supplies in Nebraska and Iowa have tightened up seasonally. Or, the combination of all the above. Whatever the reasons, spot live cattle futures and expectations for this week’s cash cattle prices seem to have found another gear.

Last week’s negotiated cash trade of 88k head fell short of enough to make packers comfortable with their inventory. So much so that some packers purchased cattle at fully steady money on a Monday and today have renewed fully steady bids. But cattle feeders are passing bids today, sensing the shift in leverage coming back their way. Cash prices appear poised to surpass $110 this week, last week’s top.

Sloppy pen conditions are bad enough in some areas to have impacted weight gains and lots of cattle are carrying tag. Temperatures plunged into the 30s or even 20s in some spots early this morning, a reminder that winter will come and months of stellar cattle performance will come to an end.

Boxed beef values, though seasonally increasing, have slowed their ascent and some margin contraction for the packing industry appears imminent. Narrowing margins in the fall is normal, but the contraction is beginning at historically wide levels and margins will likely stay black throughout Q4.

Yesterday’s USDA Comprehensive Boxed Beef report yesterday showed volume the lightest in 12 weeks. Business for 3 weeks from now is better than for the immediate spot window. Also, typical fall strength in middles and weakness in the ends is in full swing, with the chuck, round and grinds slipping.

This week’s kill is expected to be 630k-634k and the kill will slowly seasonally edge lower in Q4 as fed cattle supplies seasonally tighten.

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