Choppy Trade with a Negative Bias

By Cassie Fish, CassandraFish.com

CME live cattle futures are reflecting mild pessimism, making a new low for the week but still holding above last week’s lows. Cash cattle trades are sparse and steady in the north so far and non-existent in the south.

As this week has worn on, boxed values have held together, thanks to strength in the round and loin offsetting weakness in the chuck and rib. Beef 50s continue their wild gyrations while beef 90s keep trading sideways in a range occupied for months.

         How Much Can Cash Cattle Really Break?

The same bearish concerns voiced over the past months are just as popular today. Heavy out-weights, cheap competing proteins, sluggish hide exports weighing on the drop value and that ever-green promise of more fed cattle supplies. The first three facts are indisputable and arguably old 14BOW136_BOTW_Commercial_Protein_150x203news. The fourth, as well-advertised as elusive, the prediction that supplies will increase to the point to insure a downtrend in cash cattle prices that will last more than 4 weeks in a row, which hasn’t been true since for many months.

In fact the last time the cash cattle market actually struggled was March, April and May 2014. The seasonal increase in beef business was slow to come last year and the aggressive pursuit of grinding material sparking the big rally in beef 90s didn’t occur until June 2014. As domestic cow slaughter dropped and the imports were yet to pour in, the hunt for grinds lifted the entire beef complex, fed and non-fed. Ever since then packers have been unable to keep the pressure on the live for more than 3-4 weeks in a row. And though the high was established in late November 2014, fed cattle prices have been in a trading range ever since.

2015-05-07_chart1

There is significant support in cash cattle prices from $156-158 and at $153.

The big bet of cheap futures prices is simple. Overall beef demand will be tepid, imports plentiful, carcasses heavy and big-enough numbers will finally arrive during June 2015. Some bears believe this will happen before June 1. But no matter, as Jun LC futures have a hefty head-start.

The bears have this month’s USDA cattle-on-feed due out May 22 already on the radar, brandishing expectations of placements well over last year’s historically small number along with a lousy marketing number and an on-feed number above a year ago.

All these bearish expectations will keep the heavily discounted futures market structure intact. Leaving bulls with the only hope of reality beating expectation, an oft-repeated outcome so far.

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.

Futures Settle Into a Trading Range

By Cassie Fish, CassandraFish.com

CME live cattle futures are playing a waiting game. The big discount to cash is limiting the downside while a lengthy list of bearish factors yet-to-matter or yet-to-come encourages many to sell.

         Keep Looking Down the Road

Content with using history as a guide, most market analysts predict with a high degree of certainty that cash cattle prices will be lower June 1 than today. And many expect cash prices this week to be steady at best in spite of the fact there are larger kills in the schedule for the coming weeks and fewer cattle for sale this week, reasoning cattle feeders will accommodate packers and aid in his positive margin preservation.

Lallemand Banner

         A Bright Spot     

There’s continued disappointment being expressed that cutout values failed to make an all-time high this spring. One primal, the loin which contains cuts that are the source for the new McDonald’s premium sirloin burger being rolled out this month, is rewarding all-time high wishes as it posted an all-time high yesterday $376.38, within $2 of the rib primal. The laggard continues to be the chuck which is following a normal seasonal.

         Playing it Cool

It is mid-week and packers are playing it cool at this juncture, as to not send any positive signals to the marketplace. There’s quite a bit of “we don’t need any” floating around, yet one plant is rumored to be dark today despite black margins.

14BOW136_BOTW_Commercial_Protein_150x203The beef packing industry has begun the second month of what is always a black quarter, following a typically tougher calendar Q1. Interestingly some quick calculations based on recent publicly- released financial results for that quarter seem to show that times were tough but not near as tough for all companies as advertised by some margin models, even as the industry weathered the tightest supplies in modern history. Taking 80,000 head of fed cattle slaughter capacity out of the market over the last 9 years appears to have paid off in limiting losses to a manageable level during the apex of tight supplies. As these businesses become more complex and less reliant upon “spot” purchases and sales, perhaps the operating margins contain more profit in 2015 than just a few years ago.

If accurate, this is good news for the beef industry as it indicates financial health even with record high wholesale beef prices and tight supplies. Perhaps better-than-thought margins are partly responsible for the sporadic bursts of packer competition that have occurred over the last several months just as the assumption of worse-than-thought margins may have led many to underestimate cash cattle prices thus far in 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.

Futures Follow-through; Plow Through Resistance

By Cassie Fish, CassandraFish.com

So far CME cattle futures contracts are putting in a solid upside performance after a triple digit close higher yesterday. If it weren’t for the calendar and the bearish rhetoric, it might be interpreted as bullish. Though still a sharply discounted price structure, futures are trading today as if cash prices might gain another $1 or $2 this week.

         Jun LC Takes Out Chart Resistance

The critical resistance of $151.65 was finally breached at this writing and if the market can hold its gains and close well then the next objective is $152.42 though the big resistance is the $155 area. The fact that the market made another assault on this high and succeeded is positive from a market action perspective.

BOW_COMMERCIAL_PROTEIN_150x203

      Showlists Down

The release of yesterday’s showlist showing big drops across 4 major cattle feeding states at a time when the industry is poised for increasing supplies is psychologically and fundamentally supportive. Also yesterday there was rumored to be packer shopping for early June delivery at prices steady with last week’s trade and though unconfirmed, those rumors are providing market support.

This week’s kill is expected to be slightly smaller than last week, unless boxed beef business picks up steam this week, as packers try hard to juggle expanding kills while maintaining profitability. Still packer demand for fed cattle this week, even after a relatively large volume traded last week, will likely be solid as the next 7 weeks are typically some if not the largest kills of any year, certainly true in 2014.

Looking at a chart of the negotiated trade volume tells the story.

 

2015-05-05_Chart1

Market–ready fed cattle supplies will certainly increase over the summer as demand for raw material does as well. The market is smack dab in the middle of this intersection and at least so far, equilibrium has been reached, on average around $161 live. Packer willingness to continue to seek cattle for the 15-30 day window seems telling that the out-front beef business is bubbling as well, fed cattle are still scarce enough  and the desire to push kills toward the 580k area in the coming weeks is real.

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.

Packers Compete and Drive Cash Higher

By Cassie Fish, CassandraFish.com

All major packers competed for still tight supplies of market-ready fed cattle and prices jumped $2-3 Friday afternoon, topping in western Nebraska and Colorado and $163 on active negotiated volume. Stepped up slaughter levels, 566,000 head last week and a +560k this week require more inventory in spite of weaker boxed beef prices and plenty of bears- it took mostly higher money to jar cattle loose.

And even though boxed beef prices lost value last week, spot volume was the third best week in 2015 and above 2014 for the same week. Two respectable positives in a landscape that continues to lean bearish.

2015-05-04_Chart1

         CME Cattle Futures Not That Impressed

Astute cattle traders may have smelled the likelihood of higher cash cattle last week but CME live cattle futures did not. Futures closed weakerBOW_COMMERCIAL_PROTEIN_150x203_v2 Friday then opened modestly higher this morning, sending repetitive signals that today’s stronger cash prices won’t last and lower prices are a given between now and July 1, making its discount justified. Plus roll over is here along with the lid it normally keeps on the newly anointed front month. A $13-14 discount might be a little too hefty but Jun LC behaves as if $10 is plenty close for comfort, about $2 wider than a year ago. Once again there seems no reason for shorts to be the least bit uncomfortable.

Only a push above $151.65 in Jun LC (the high for the last 2 weeks) and a close above it would begin to turn the negative tide. Last Friday’s Commitment of Traders’ report confirmed that once again, money managers bought the rally and commercials sold it, which has worked in favor of the commercials so many times in the last months it’s become clock-setting worthy.

While on the subject of charts it is interesting to note that on the spot weekly LC chart last week, Jun LC bottomed within a tick of the spot low made by Feb LC back in January. That level happens to be the lowest a lead live cattle month has traded since August 2014.

         Yellow Light

The cautionary theme reflected by cattle futures has become overly familiar. If cash cattle prices don’t fall far enough fast enough, Jun LC will follow in the footsteps of many other spot LC contracts and rally.

With time on their side, the bears will focus on a litany of well-aired concerns- from big weights to declining hide and offal values, while the beef packer has the real work of actually breaking cash prices while increasing slaughter production.

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.

Brass Tacks

By Cassie Fish, CassandraFish.com

Packers couldn’t wait until Friday and the Texas negotiated trade, which used to be the biggest and is now the smallest, traded at $157-158 Thursday afternoon. Even though the trade was generally steady, the lower boxed beef price quote yesterday afternoon seemed to cast a negative tone and hopes for today’s action fell.

         Cash Bids on the Move

Then comes Friday. Cash bids start in Kansas at $159, move to $160 quickly where about 1500 head of cattle trade. Most of the $160 bids were passed in Kansas as the $160 bids moved north to Nebraska and even South Dakota. At this point, a steady to higher live cash trade seems assured.

         Boxed Beef Volume Up; Prices Down

Switching to boxes, thus far, the spot trade has seen 534 loads move in 4 days while all of last weekBOW_COMMERCIAL_PROTEIN_150x203_v2 totaled 539 loads. And there is evidence that sales out front have indeed picked up to supply the multitude of gatherings seen each May- from Mother’s Day to graduations to Memorial Day weekend. End users may be complaining about beef prices and talking about how cheap pork is but make no mistake, nothing replaces beef when that is what the consumer desires. The choice and select have lost a little more than $3 and almost $7 this week compared to a week ago.

        

          Futures on the Fence

Futures, failed at resistance this week then after falling hard back to support yesterday have recovered back to mid-range. The bears are sure it’s just a matter of time before cash prices fall, therefore the discount of futures to cash is not a problem. Today’s futures action is better than expected but not good enough to run the table on the shorts.

         Feeder Futures Gain on Fats

Feeder cattle futures have acted good all week and gained on fats though in truth, they are ending the week about where they did a week ago. Between green grass, retaining replacement heifers and the focus on heavier feeders for feedyard placements, the downside for the feeders unspoken for seems to be limited. This leaves the fate of summer fed cattle prices as the biggest unknown for feeders at this point. Spot May FC are $4 discount today from the index modest compared to Jun LC $10 back of today’s cash trade.

         Packer Focus on Expanding Slaughter

This week’s kill has been impressive and looks like the weekly total will push over 560k. Packer margins are positive ranging from $20 to over $50/head depending on a myriad of factors. Next week could see 570k. The good news for cattle feeders is packer competition for market-ready cattle as production schedules grow is still alive and well. And prices are holding together as a result.

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.