Cash Cattle Market Rally Just Getting Started

By Cassie Fish, CassandraFish.com

The deck had seemingly been stacked against the negotiated cash cattle market this summer until Friday, when aggressive packer competition for immediate slaughter needs pushed cash cattle prices $1 to mostly $2-3 higher. There was even an isolated $150 trade on Friday in Nebraska, $5 higher than the prior week.

Not only were prices higher, but there is growing speculation that all packers did not get their needs met, even at higher money. Cash cattle prices this week will trade fully steady to very possibly higher again. It is unlikely cash trade will wait until Friday this week. Tops bids of +1.50 are around early today and unconfirmed rumors of +2. Kansas seems to be exceedingly short of numbers this week.

         Higher Boxes Expected Too

With the summer low secured and the clarity that the market is on the backside of third quarter market-ready fed cattleBOW Ad 05-2015 supplies, the outlook continues to improve quickly. Boxed beef prices will be as much as $5 higher this week. Even hides and beef 50s were higher on the week last week. The dog days are gone and back-to-school is here. The rest of the global commodity world may be in a negative tail spin, but bullish cattle supply fundamentals are still holding sway in the beef world.

         Strong Cattle Futures Performance this Morning

CME cattle futures have posted triple digit gains this morning in response to Friday afternoon’s higher cash trade but have conservatively avoided a limit up move as of yet. Spot Aug LC, which gapped higher on the opening, is +500 points off of last week’s low and looks to be trading about BB4W_Ad01_300x250 (1)par with last week’s soon-to-be released USDA 5-area average. A push in Aug LC to $149 or higher this week seems probable. Options expire this Friday and First Notice Day is in a week. Open interest in Aug is already a small 35k.

Last Friday’s Commitment of Traders report showed that large commercials reduced shorts and increased longs while the managed funds got short on the break. Expect managed fund short-covering to fuel the rally in Oct LC in the coming days as the fundamentals trump the “commodity bear” rhetoric.

Copyright © 2015 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.

Friday Follow-through

By Cassie Fish, CassandraFish.com

CME cattle futures are green this morning and look likely to close higher on the week after making a new low for the move, a positive technical signal that portends more upside to come. Spot Aug LC is still short of last week’s high of $147.27 and if momentum builds and that hurdle is overcome, the charts will look powerful. On the spot monthly continuation chart, Jun LC expired at $147.85. It would be surprising and even potentially game changing if Aug closed above that level on this last day of the month, especially in light of the beating cattle futures took in July.

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Though volume is light and open interest is slow to build, many of those that trade commodities as an asset class have left the building, leaving cattle futures trading to those more closely involved in the actual business. Left to its own devices, the market seems to be responding to the seasonal likelihood of higher cash prices, boxes and live over the coming weeks.

         Boxes Finally Higher on the WeekBB4W_Ad01_300x250 (1)

Finally all major primals are higher on the week except loins and the overall cutouts, both select and choice are higher on the week as well. The slaughter this week has stayed curtailed and is predicted to end up at 536k. Monday’s USDA comprehensive boxed beef report will give us additional insight as to whether the cheap wholesale beef prices have stimulated active out-front bookings as has been rumored.

         Upping Negotiated Cash Bids

Even with the smaller production schedule packers need to replenish their inventories today and bids are a $1 higher live and $2 higher dressed this morning than all week, edging closer to last week’s price level. There’s really no reason cash should trade anything less than steady and higher in spots isn’t out of the question.

         Tough Times; Improving Demand?

BOW Ad 05-20152015 has been a tough year for the packing industry and may end up the first losing year since 2012. The last 2 months have been tough for the cattle feeding industry, making it close to a breakeven year for some and a losing year for others. That puts these 2 industry sectors at big-time odds today as packers attempt to claw back to black and the cattle feeder has had enough of being at the short end of negotiations for the majority of the time for weeks. As the market rounds out this low and heads higher expect the tension between cattle feeder and packer to stay high. The bigger the cutout rally, the more retail beef features and some relief on hide and beef 50s prices would all go a very long way to adding money to cattle feeding and packing coffers.

Copyright © 2015 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.

Basis Change Number Two Underway

By Cassie Fish, CassandraFish.com

Aug LC has pushed above last week’s 5-area average of $145.48 this morning making a new high for the move. In BOW Ad 05-2015methodical, grinding fashion, today’s futures action is confirming the summer low is in and the final basis change, perhaps, of the summer is in motion. Back in June, spot went premium as well which turned out to be premature. Not likely this time.

A historically “normal” basis would put Aug LC above $146, where it has just traded, even if cash is a steady go this week. Boxes will gain on the live in August just as futures will lead the live too. But the live will rally next month.

With the bull spreads working and futures reflecting no risk premium, the market structure is recognizable to seasoned cattle traders as a realizing bull market. The unexpected disappointments of 2015 have effectively drained the supply bull expectations out of the market. Now that the market has recently returned to levels not seen since May/June 2014 on the physical side and the mighty February low on futures side, “value” has been identified once again.

This sets up a “buy breaks” trading strategy in futures and a keep cattle moving attitude in the country. ReplacementBB4W_Ad01_300x250 (1) values have eased some recently, though break evens still feel too high relative to closeouts the last 2 months. Still, empty pens are surfacing and attention is shifting towards fall supplies and just how short they will or will not be.

The negatives that have hurt the 2015 cattle market- fewer exports, way-bigger imports, disastrous drop and fat trim prices may still be with this market but have been “priced” for now. How many dollars will the tight fed cattle supplies slated for the fall/winter of 2015 and early 2016 be worth? Even if the market falls short of last fall’s 5-area average all-time high of $171.38, upside conservatively exists back to the well-worn $158-162 area where the market spent a great deal of time at or above over the last 14 months. Whether the market exceeds that level depends on a great many unpredictable unknowns, some global in nature.

2015-07-30_Chart1

Copyright © 2015 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.

Downside Limited; How Much Upside?

By Cassie Fish, CassandraFish.com

Pausing after yesterday’s big up, but with the bull spreads working, there is a growing sense CME live cattle futures have finally made their seasonal low. At the same time, there is no sense of urgency that either the cash or futures will rally dramatically anytime soon.

Lallemand BannerLikely upside targets for a retracement are the $149-150 area in most active Oct LC and $147.80-149 in spot Aug. All eyes are now on the cash fed cattle prices this week which will likely trade no worse than steady. But packers are playing it quiet cool thus far, with a very few $143-144 bids around compared to last week’s 5-area average of $145.48, which was the lowest cash price since the week-ended May 30, 2014. But given the cutbacks in this week’s kill thus far, down 8k WTD from last week’s tiny 539k, perhaps steady is in the cards.

Retailers are certainly aware that wholesale boxed beef prices are the most attractive they’ve been since June 2014 but the stampede to book product and feature beef has not occurred as of yet. Retailers have always been notorious for being slow to raise retail prices to consumers and even slower to lower them. But lowering them will most certainly stimulate consumer buying after the nose-bleed prices, especially for middles, seen since spring throughout the U.S.

BOW Ad 05-2015         It Depends

The degree of retail featuring and velocity of the beef cutout rally in coming weeks will combine to inform packer slaughter levels. Packer margins have creeped back into the black but need help to instill confidence. Seasonally cutout values increase from now until Labor Day but currently the lean complex is struggling and heavily discounted beef 50s which have bottomed, will continue to be limited by pork fat trim. Still, there is a lot of upside potential for middles here which should contribute overall to the cutout rallying back to the mid-$240s.

Cash cattle prices are typically slower to transition this time of year than the beef and if kill levels in August are expanded then optimism for higher prices in September would be even greater. Fed cattle supplies will decline through the end of the year but the more robust the August kill the more positive the outlook for the remainder of 2015. Weights don’t seasonally top until late October so the wide margin of average carcass weights compared to any other time in history is unlikely to back off, especially as parts of Nebraska and South Dakota anticipate what could be a record corn crop.

Copyright © 2015 The Beef Read. All rights reserved.
The Beef is published by Consolidated Beef Producers…for more info click here.
Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.

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Bear Market Bounce or Seasonal Low

By Cassie Fish, CassandraFish.com

As cattle futures post triple digit gains this morning most traders are asking themselves the same question. Was that the bottom yesterday or will the market fail again after correcting at least the short term oversold condition?BB4W_Ad01_300x250 (1)

The calendar is playing its role here as experienced traders know the last week in July puts in a bottom in normal years (2014 and 2008 being two famous exceptions).

Futures have finally taken out a couple of days highs and if the momentum keeps rolling, more buy-stops will be triggered and this rally will gain more credence. But the onus is on the market to continue to perform before a bottom can be confirmed.

There is a lot of bearish news priced in this futures market to be sure, but fundamentally the front-end heavy cattle in Nebraska must get completely cleaned up before the path is clear and fed cattle prices can gain some upside steam.

Past these front-end cattle is thought to be some of the tightest fed cattle supplies yet seen, expected to prevail through the fourth quarter. So packers will work overtime to hold on to profits regained this week by keeping kills curtailed. Last week’s kill of 539k is expected to be repeated this week though with black ink this week, it could creep a little higher. Packers were red last week about $15 on average when looking at the USDA comprehensive cutout. Last week’s cheaper cattle buy and a boxed beef market that will trend higher going forward should insure margins stay black for a while and packers will work hard to maintain leverage while negotiating with cattle feeders for as long as possible.

         Kill Levels- How Much is Enough

BOW Ad 05-2015Fed kill levels in 2015 have surprised pretty much the entire industry, coming in much smaller than projected. Part of the kill short-fall has been due to the greatly slowed market rate of cattle on feed. But in hind sight it’s now pretty obvious that the sharp kill reductions in June did finally back up a few cattle. What now passes as a “big kill” is a fed kill above 450,000 head. There have only been 7 weeks in 2015 when levels have been that large, 1 in January, 4 in May, 1 in June and 1 thus far in July.

If beef demand improves in August, stimulated by still attractive wholesale price levels, then that coupled with profitable packing plant margins could push a couple of weeks or more of fed kills in August back above 450k, which would go a long way to restore currentness to front-end fed cattle marketings and shore up the supply bull for the remainder of 2015.

The Beef is published by Consolidated Beef Producers…for more info click here.

Disclaimer:  The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.