Spreads Turn

By Cassie Fish, http://cassandrafish.com

CME cattle futures have traded both sides today but there are some subtle changes. With just a few days left to go on the Goldman roll, Oct LC has finally found its footing relative to the rest of the contracts. After weeks of a huge bear spread move, with the Feb LC reaching almost $10 premium and the Dec LC almost $6, Oct is hinting strongly today that was far enough.

How much Oct LC can rally here will depend on the negotiated cash cattle trade this week and next. Cash prices have been in a downtrend for weeks, averaging under $105 the most recent two weeks. This morning, a few bids of $102 and $103 have surfaced in the south and some fat cattle auctions are coming in higher than last week.

Given the shrinking inventory position of packers, it’s unlikely they can wait until Friday to buy this week. It’s been three weeks in a row of declining negotiated trade volume as packers relied on the many cattle bought with time, formulas and contracts. Expect more packer competition this week and cash prices fully steady to higher.

Last week’s boxed beef trade, as reported in the USDA Comprehensive Boxed Beef report showed a slow-down in business. Volume declined in all categories after two consecutive weeks of brisk business. No doubt the severe weather impacting major population areas impacted movement and active fill-in buying will surface over the coming weeks as conditions normalize.

It’s a couple of week out before seasonal demand for middle meats finally begins. At the point, the rib and loin continue to be a drag on the cutout value.

Slaughter schedules are set for the remainder of September, packer margins are $150-$200 per head black and the fed kill will run between 505k-512k, as the race to end the fiscal quarter culminates. A kill of that level ought to keep the cattle feeding industry from losing any additional currentness, despite the premiums being carried by futures.

These same premiums have motivated cattle feeders to pay up for replacements and feeder prices are pushing higher, aided by expectations of cost of gains as cheap or cheaper than last year. With slightly more than 3 months left in 2017, some have become convinced that 2018 will see a repeat of the strong prices experienced the first half of 2017. The hard reality of herd expansion pushed into the background for now.
Copyright © 2017 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.

Wait and See Monday

By Cassie Fish, http://cassandrafish.com

It’s been a quiet Monday morning thus far. CME cattle futures have traded both sides in quiet action. The back end is approaching overbought status and is nearing some significant overhead. Oct and Dec LC, premium to last week’s limited cash trade, are still playing catch up technically.

The bigger question today remains unanswered. The debate around which packer needs how many and whether cash will be higher this week is really the only topic being discussed.

Two weeks ago, the negotiated fed cattle trade volume was 68k, the second lowest of the year. So, Friday afternoon, packers were forced to pay $105 live and $165 dressed to gather any numbers at all, steady with the prior week and $1-2 higher than earlier week expectations. Undoubtedly the basis change provided backbone for sellers that has been missing for months.

It’s also true packers own a lot of cattle with time, some plants covered into the week of September 25 and in general fed cattle supplies are at their peak. Packers have let their owned inventory dwindle the past 3 weeks. Last week’s trade volume tied the year for the lowest at 55k. At the very least, it would appear the downside in negotiated fed cattle prices is extremely limited until packers reloads a larger inventory position. How much the cash market could rally as packers reload is more difficult to predict. Is it possible to push cash back to $107 to $110?

Packer margins continue to be excellent and the September slaughter schedules are set. Boxed beef values have stabilized, though the upside here is limited. Anticipation of post-hurricane refill is significant, though offerings are ample. Kill estimates for the week are 630-635k, putting the fed kill near 510k or so.

Copyright © 2017 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.

Futures Hold; Cash Standoff

By Cassie Fish, http://cassandrafish.com

The decisive basis shift of Oct LC this week, high-priced replacement costs and unprofitable market-ready fed cattle have combined to give cattle feeders back bone this week. CME cattle futures have held yesterday’s gains so far, which has insured the packer bids- below last week’s price- are being ignored.

Cash bids in the north are $163, figured live about $103 while in the south where there is reported to be more-than-ample numbers, bids range from $100 to $102. If the market is steady with last week, that would be considered a win for feeders.

The fear among cattle feeders, so palpable much of August has been replaced by hope. The hope is being provided by growing premiums from Dec LC through 2018 futures contracts.

Experienced cattle traders know it’s fall and with fall comes heavier carcass weights, more yield grade 4s and 5s. September beef production will exceed a year ago and might top August except for less kill days. But that’s something to worry about later, not today.

This week proved to be the week to draw the line in the sand for producers, and draw it they have. If the negotiated trade the last couple of weeks had been bigger than it was, then packers could be more complacent. But it wasn’t, so perhaps they can’t, at least not all of them. That is the bet the cattle feeder is making and futures seem convinced that bet will be a winner.

After all, packers are profitable and have orders to fill. It’s the last month of the quarter, so the incentive is there to run volume and bank sales realizations. The market appears to have finally stabilized. The larger question, as to how much upside can actually be realized remains to be answered in the coming weeks.

Copyright © 2017 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.

Rally Day

By Cassie Fish, http://cassandrafish.com

CME cattle futures, defying lackluster cash news, have bolted higher today and every contract is higher on the week. Oct and Dec LC have yet to take out last week’s highs, but today’s powerful rally is impressive, with Oct finally gaining back some ground on the spreads. Oct LC is nearly $3 above last week’s cash trade and $4 above the highest cash bid yet this week.

Front-end cattle futures had been in a steep downtrend since the week of August 7 and obviously got cheap enough, holding the $104 area. Whether this is a sustainable rally is the more important question and it will depend a great deal on what kind of rally can be generated in the negotiated cash trade.

The cash trade has been sluggish for weeks and packers own a great many cattle out-front, allowing them to pick and choose and forcing feedyards to carry cattle over from one week to the next. Today’s futures rally has not yet resulted in steady bids with last week, let alone higher as packers have sat through other grease-fire rallies that have failed only to ultimately scoop up cattle cheaper later. There’s no way to know whether this time will be different yet. It is true that last week’s negotiated volume was the second smallest of 2017 and logic would say packers will need to step in soon.

Anticipation of post-hurricane fill-in beef business for south Texas is providing some support in boxes and the talk is that boxes have finally bottomed. Though with beef production well over a year ago, the upside in the cutout is thought to be limited and the seasonal would indicate the same.

Packer profit margins are north of $150 per head though, so it’s thought kills will continue to run over 500k fed per week through September, which ought to prevent a further loss in currentness. Some good news, the fed kill, the week ended August 26 was the largest of 2017 at 518k, making up some for some disappointing kills in late July and August. This week’s holiday-reduced total kill is estimated at 550-550k, 20k-25k over a year ago.

At the same time, reports of increasing weights and resulting YG 4s and 5s are more common all the time. Carcass weights from 2 weeks ago increased 3 pounds WOW and are still 9 pounds below YOY.

Today’s rally is a welcome sight for cattle feeders and futures bottom-pickers and bull spreaders. A weekly close tomorrow above last week’s high of $109.75 would shock, but would insure a technical bottom. Less than that, Oct will post an inside week with a higher close following last week’s outside week with a lower close, leaving a lot of room for interpretation as to whether the low is in- or not.

Copyright © 2017 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.

Maybe

By Cassie Fish, http://cassandrafish.com

It’s early September and cattle traders are wondering if the 27% break in cash cattle prices achieved last week since the Q2 high is enough. This year’s cash break isn’t as large as the last two years, nor the late 2003/early 2004 decline, but it is substantial. CME cattle futures seem to like holding the $104-105 area in Oct, long an important support area and the deferred contracts are adding to their premium. Optimism isn’t commonplace yet, but some at least are wondering if perhaps the worst is over.

The roll of managed and index fund positions from Oct to Dec and Feb LC is in full force and all but Oct LC are trading higher on the week. Oct is trading just above its low for the move of $104.30 and Aug LC’s spot low of $104.05.

The market and its players want to be friendly this week. One source of positive news has been the USDA Comprehensive Boxed Beef report for the last two weeks showing huge sales, many out-front, as end users scoop up bargains for Q4. Demand seems to be holding together well.

Another potential positive was last week’s relatively small negotiated fed cattle buy of 68k, which could intimate that packers will need to purchase more cattle this week, causing the market to be steady or even slightly higher. Though cash bids have started at $102 south and $163 north, $2-3 lower than last week and packers are generally buying for the week of September 18, so disappointment here could still be in the making.

September and October are the two months when carcass weights see the greatest week over week gains. Feeding weather is perfect. The fed kills in September and October may well exceed 500k head per week and beef production will remain large, so continued good demand is critical, as is not creating any backlog in fed supplies.

From a cattle feeding perspective, Dec LC is advertising better days to come, so some cattle feeders may be enticed to feed cattle longer and hit the November marketing window, while avoiding the next 60 days, which could extend greater supply well into Q4. It seems worth serious consideration that if maintained, the futures market premium will draw cattle to those time frames, compromising currentness and adding tonnage over time.

Copyright © 2017 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.