Plenty of Crosscurrents for Futures

By Cassie Fish,

CME cattle futures are caught up in a multitude of mixed news, fueling a choppy, directionless trade.

Feeder cattle futures managed a decent rally this morning after a lower start, supported by lower corn prices after yesterday’sBOW Ad 05-2015 crop rating for corn came in better than expected. Though the pull back in corn isn’t conclusively a top yet, traders are ready to lean on the corn market heavily when a summer high becomes a certainty. Still feeders so far haven’t been able to challenge last week’s highs and traders are keeping a close eye on a lackluster live cattle futures trade.

Live cattle futures also started modestly weaker, turned briefly green then slightly lower again. Cattle futures are supported by the stirrings of continued good packer demand for fed cattle this week while lower boxed beef prices, down hard yesterday with more to come, limit the upside.

This week’s kill is expected to be in the 550k-560k head range as packers take advantage of still positive margins. Beef clearance over the holiday weekend is said to have been good and some fill-in business is expected this week as beef prices cheapen.

         Tally Shows Big Negotiated Trade at Higher Money

Last week did end up being one of the biggest negotiated trade volumes of 2015, and continued interest in “tops” purchases this week supports the idea that packer captive supplies for July are tight. If packers must continue to compete more aggressively against one another for “unspoken for” cattle supplies the remainder of the summer that in itself is positive.




What we know is clean up was excellent at the feedyard level, showlists are down this week and fed cattle prices have a solid underpinning at present. The supply-side of the cattle market has reasserted itself as positive driver.

Boxes typically bottom in the third week of July and there’s no reason to expect this year to be anything different. There is also news from Australia that slaughter levels in that country are declining. In fact the most recent weekly report of beef imports showed AUS imports down slightly from a year ago, perhaps an early indication that the enormous YOY gains have maxed out. This below from an Australian cattle publication…

Weekly kill: Grids surge as supply/demand pendulum swings

By Jon Condon, 07 July 2015

The long-anticipated change in the cattle supply/demand cycle has officially occurred, with slaughter volumes across Eastern Australia now displaying clear signs of decline, and grid and saleyard prices responding accordingly.

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.

Packer Interest Good on a Monday

By Cassie Fish,

This first Monday in July has begun with 4 packers bidding as much as $1.50 over the top that will be paid this week, evidence that packer interest is still excellent following last week’s big negotiated trade of 94k head. Last week saw the biggest negotiated trade in several weeks at higher money as packers scrambled to secure inventory. Clean up at the feedyard level was very good and this week’s cash cattle prices are expected to be fully steady to higher.

Boxed beef prices on the other hand are experiencing a pretty classic and well anticipated July sell-off, seeking a bottom in the next couple of weeks in the $240-245 area basis choice.

         Futures Fade

CME cattle futures prices have retreated today after late week gains, taking out Friday’s lows and pulling back towards the 10-dayBOW Ad 05-2015 moving averages. Outside market pressure from the tensions in Greece could just as easily be blamed as anything else, whatever the reason it’s a disappointing day for bulls optimistic about this week’s cash cattle prices.

The CFTC’s commitment of traders’ report released last week confirmed that the huge open interest decline over the last few weeks may have culminated last week when futures made their lows. Commercial shorts stepped aside as money managers liquidated longs. With the big liquidation behind this market and total cattle open interest back down to the 250k level, choppy market action may dominate this July as this market kills some time to see where the summer low for boxes and cash prices play out.

Speaking of choppy, Aug LC has gone slightly discount to last week’s cash trade and will now be plagued by the pre-roll, roll and post-roll as positions are migrated to the second option. So that too could limit any robust rally in Aug LC. A close over $152.42 is still needed in Aug to ignite a push to the mid-$150s while last week’s low of $147.85 is now support.

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.

Packer Competition Pushes Prices $2-4 Higher

By Cassie Fish,

After 4 consecutive weeks of curtailed cattle slaughter in June there was worry that perhaps fed cattle marketings had become less current. But yesterday’s aggressive pursuit of fed cattle inventory by every beef packer obliterated that concern. Instead, yesterday’s activity is evidence that fed cattle supplies continue to be not only historically tight, but smaller than believed or understood by most in the industry.

BOW Ad 05-2015Packers had masterfully managed to keep cash cattle prices in a downtrend for 6 weeks running while boxed beef prices increased and company margins pushed out over $100 per head. But part of the strategy to break cash prices was to curtail volume, which ultimately was unsustainable. Cash cattle prices may now be $5-6 below a year ago, but a sustainable downtrend in a broad context is not possible because the supply overall is too small.

CME cattle futures responded with a limit-up move yesterday and today have modestly traded both sides of steady with now lead Aug LC hovering close to this week’s likely average cash price. A close above $152.45 from a technical perspective is needed to propel futures higher. Without the market will likely to spend even more time in what has become a pretty tiresome chop. Still LC contracts will close higher on the week.

Despite the remarkable strength in cash cattle prices yesterday there are plenty of bears still around. Predictions of post July 4th weakness in boxes is the dominate bearish talk along with other familiar negatives like reports of resistance to high priced beef at grocery stores, to the struggle to find a bottom for hides. Even beef export shipments today were disappointing. As has been the earmark of this 2015 market, there are always plenty of reasons to temper the bullish supply-side argument.

The year is half over and the cattle market has taken what seems like dozens of bearish shots. The dreaded dog days of summer are finally here rather than looming out front. So far spot live cattle are trading above the double bottom spot futures lows made last July and August of $146.80. Expiring Jun LC Tuesday got down to $147.85. Last week cash cattle prices reached and held $148, the lowest level in 13 months. So was that the summer low or it there one more shot down?

Even bears get quiet when the discussion about expectations for extremely tight fed cattle supplies in Q4 2015 come up. This market is smack in the middle of the summer transition from bearish news to an improving outlook.

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.

Volatile Price Swings Mark the Week

By Cassie Fish,

Lots of volatility but little to show for it is the best definition for this week’s trading in cattle futures. Strength Monday followed by a perilous sell-off yesterday precipitated by a surprisingly friendly USDA row crop report which tanked feeder cattle futures and sent live cattle back to the 100-day moving average for yet another visit.

Lallemand Micro-Cell

Anymore, most traders sit back and watch when the 11 a.m. CDT USDA reports are released as the computer-generated trades control the playing field. Indeed corn futures soared as the corn acres planted for this new crop year came in 2% below a year ago, well below expectations and the lowest planted area since 2010. Less acres planted ratchets up the focus on crop conditions going forward and has now upped anxiety in end users who were universally banking on sub-$3.50 corn this fall. Dec corn has rallied 74 cents in less than two weeks making a new high for 2015.

Today the dust has settled and CME cattle futures are posting another up day. It’s the beginning of a new quarter but the cusp of a long holiday weekendBOW Ad 05-2015 with futures trading winding down early tomorrow for a holiday close.

         Cash Trade Quiet So Far

Packers have been quiet this week, picking around the edges with a few trades towards the bottom end of last week’s weaker cash trade. Still cash feels mostly steady at this juncture and there are credible rumors packers need to replenish inventories. This week’s holiday shortened kill is estimated at 525,000 head. Packers are making over $100 per head even with lousy hide and beef 50s prices.

Boxed beef prices are quietly mixed, with select higher on the week, choice lower and the choice/select spread at $3.38 which is exceptionally narrow historically. It is unanimous boxed prices will sell-off seasonally in July, the only debate is how much.

         Feeder/Fat Spread Narrows

It might not feel like it but most live cattle futures contract months are about unchanged on the week and don’t appear much worse for this week’s wear. Feeder cattle futures on the hand have been flattened with most active Aug FC reaching the lowest level this week since April, purely the result of a huge corn rally and a thinly traded contract. No doubt, if the 2015 corn crop ends up getting “made” with above trend line yields after all, feeder price focus will quickly return to tight supply fundamentals and prices will rally yet again.

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.

The End of an Era

By Cassie Fish,

For those of us that have traded these markets for decades, this week marks the end of an era. The agricultural trading pits at the CME and CBOT were a place where the professional market maker assumed risk and the commercial trader laid it off with confidence and transparency. There was a distinctive and very discernible action to read, a road map as it were, for a dedicated student of the market.

The trading floor was a vital community as well as a place of commerce. Every major cattle feeder and beef packer talked to someone on the floor, sometimes multiple times daily as information was shared, ideas exchanged and lifelong friendships forged. Farm kids fresh out of college headed to Chicago to seek their fortune and if they stuck with it could learn valuable skills and find opportunities available nowhere else.

The migration to electronic trading is virtually complete. Traders now fly blind with transparency a thing of the past. Computer algorithms generate ordersBOW Ad 05-2015 at lightning speed and attempt to read the book before blowing through it. Gone are the days of multiple scaled up or down orders providing fodder for the market to chew through, which created a certain methodical pace much of the time. Here to stay is much greater volatility much more frequently- some of it meaningless in the broader context.

Though the futures pits won’t officially shut down until Monday, today is the expiration of Jun LC, the final pit traded live cattle futures contract after 51 years. Currently Jun LC is trading higher on the week but lower on the month. From a spot market perspective, Jun LC is likely to have the lowest expiration of any cattle contract since April 2014.

The lowest spot price expiration in 14 months is a reflection of the sense of resignation in the cattle industry right now both on the financial and physical side. Resignation not only by those traders who will miss the sense of confidence and fairness that came from conducting business in the pit, but also on the cattle feeding side where the limited negotiation cash trade has diminished the sense of confidence and fairness there as well. There is an underlying feeling that these changes are larger than life and unstoppable translating to a sense of diminished individual power.

Today’s post is dedicated with gratitude to the men and women who took the orders, filled the orders, kept the count straight, reconciled the out trades, swept the paper, assumed the risk and made the market. It was a job well done.

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.