Mid-Week Auction Surprises; Futures Rise

Posted on:  7/12/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures had a quiet, but impressive rally yesterday, posting an outside day with a higher close in front month Aug LC. Today, after choppy early trade, better-than-expected prices on the Fed Cattle Exchange on-line fed cattle auction buoyed futures to new highs.

Bears are focused on the typical July bearish boxed beef seasonal and what is viewed by many as more-than-ample supply of market-ready fed cattle between now and Labor Day. Bulls are generally hard to find. Yet futures continue to act pretty good, all things considered and now cash prices are finding footing near last week’s $117-118 trading range, with a few cattle bringing $118.75 on today’s FCE.

The industry knows it has pulled cattle ahead. It even knows some cattle with an August out-date have died already. But the actual distribution of inventory is a bit cloudy for the next several weeks before supplies begin to seasonally decline in the fall. Since much of the supply lies in the hands of large corporate feedyards who market their cattle using a formula to a specific packer, this information is not widely known, but it is widely guessed at.

This leaves number crunchers to the known fed cattle slaughter data and tracked against placement data which indicates that fed cattle slaughter levels have been more-than-adequate to keep fed cattle marketings current.

During normal cattle market years, summer is known as the transition, when futures look past the summer low to better prices in the fall and early winter. Since the industry is amid expansion, many cattle traders have been so bearish Q3, there was no optimism available for seasonally improving prices in Q4. But it can be argued that futures are looking ahead, as evidence by a gradually growing premium of Dec and Feb LC. This year, it is likely that Q4 beef production will not only be less than Q3 but under Q4 2016.

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.

Quiet Chop

Posted On: 07/11/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures are quietly trading both sides of steady today, while much of the commerce takes place in the spread trade as the fund roll from Aug LC to Oct LC is center stage. By tomorrow, Aug will have less open interest than Oct and its role will become less important going forward. Yesterday also saw a net drop in OI of almost 5k contracts as some funds exit entirely. Perhaps the exchange, with Aug, Oct and Dec close to par, is no longer enticing. There is no way to know for certain.

Expectations on the cash side of things for this week are for sloppy cash fed cattle prices and seasonally lower boxed beef prices. No surprises here. Packer bids are mostly nonexistent, a $186 from a regional in north was picked up.

As of last week, fed cattle prices were $16 below the 5-year average while the weekly average of choice boxed beef cutout was $7 above the 5-year average and the third highest cutout in history for the week ended July 8. Only 2014 and 2015 saw higher boxed beef prices in July.

There is more vocalization this week about the slowness in boxed beef interest and sales, despite seasonality or no. After a bell-weather year for selling beef, it’s been a while since beef sales teams have had to push meat out the door. Packer margins are still quite profitable, but predictions of another $5-10 lower on cutout values are wide spread.

The recent big kills insure there is plenty of meat in the system to move and this week’s slaughter is expected to be 630-635k with the fed kill once again topping 510k. In a remarkable feat, the industry has slaughtered 892k head YTD more than in 2016.

CME cattle futures continue to hold above last week’s low and the 100-day moving average. It appears a lot of bad news is in the market and as the basis continues to inch closer, it is also quite seasonal under normal market conditions. Futures are likely range bound until it becomes clearer that cash prices have only a little or a lot more downside here. The timing for the seasonal low in cash and boxes is the second half of July, so it is a waiting game.

The old saying, never sell a sleeping market may explain futures rally today as well as anything.

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.

Normal Seasonal or another Fall Wreck?

Posted on:  7/10/2017

By Cassie Fish, http://cassandrafish.com

As the cattle and beef market settle into typical July seasonal weakness, many, if not most conversations are centering on whether the fall of 2017 will see the kind of cattle market wreck experienced in 2015 and 2016.

The magnitude of the fall sell-offs the last two years as well as the losses experienced by the cattle industry were staggering. However, there are major market fundamental differences between now and then.

A primary difference is front-end currentness. Significantly fewer yield grade 4s and 5s, smaller carcasses, less fat trim- all are friendly. Lower fed cattle breakevens are a positive, as eagerness by the cattle feeders to capture profit contribute to fed cattle marketings remain current. Summer fed kills, averaging over 510k head, have been big- big enough to maintain currentness.

Everyone knows that ample fed cattle supplies, relative to recent years, will be available from now until October. But if the last 5 weeks are any guide, the industry will move through them in an orderly fashion, supported by profitable packing plant margins and robust domestic and export beef demand, prevalent all year in 2017. The fear of course, is that the greater supply will pressure the cash fed market another $5-10 lower over the next 60 to 80 days.

Beef demand was reignited in Q4 2016 and beef has stayed in the retail mix, despite a tightening of retail margins the last couple of months. Beef has increased store traffic and rings at the register in 2017. The retailer will be back for beef during times of well-known seasonal weakness like the second half of July and again in September. The ‘dog days’ are greatly priced in the market decline already experienced. An additional $5-7 will come off the cutout this week but there is major support in the $208-210 area. Ends and grinds are holding well relative to middles, which is 100% seasonal and the rib is seeking a low in the next 2-3 weeks.

CME cattle futures don’t act all that bad today, considering the plethora of bad news and an explosive CBOT grain and oilseed rally. Last week’s lows have a target on their backs by bears. Though savvy traders can see that a big chunk of the break is already behind this market. Some are carefully watching the spreads, wary Aug LC may decide to take on this week’s Goldman roll selling as commercials consider rolling shorts further back, even though from a flat price standpoint, Oct and Dec LC look too cheap when calculating the decline in beef production from Q3 to Q4. Aug LC has stubbornly and very incrementally narrowed its basis to cash and gives no indication of doing otherwise.

Last week’s Commitment of Traders report as of the close Tuesday, July 4th, showed commercials covered shorts and managed funds liquidated longs, which could be viewed as mildly friendly.

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 Find Support

Posted On: 07/07/2017

By Cassie Fish, http://cassandrafish.com

Yesterday’s failed assault on the 100-day moving average was not accompanied by a net loss in open interest after all. Maybe this afternoon’s CFTC Commitment of Traders report will shed some light on fund position length. The normal roll is taking place however, and after today, less than 20k contracts will separate Aug and Oct LC.

Aug LC has rallied 342 points off yesterday’s low, stopping at the 10-day moving average and 42 points shy of Wednesday’s high. Forward spread momentum has faded some but the cattle complex is mostly green despite widespread bearish sentiment.

Technically, the lines are drawn in the sand as the market continues to spend it’s time in a mostly sideways trading pattern in place since mid-June. Looking back, it’s clear futures have treaded water while cash fed cattle and boxed beef prices have broken sharply. And this market continues to find a way to muddy the water of interpretation of its behavior.

The negotiated fed cattle trade is mostly over and the volume thus far is 84k head, similar to recent weeks and adequate for packers to continue with fed kill levels above 510k weekly. Average price appears to have dropped about .50 cents, barely hanging on to $118.

Cattle feeder attitudes remain bearish, and hot, humid weather next week in the upper Great Plains and Corn Belt will keep sellers motivated.

Boxed beef prices continue to seasonally decline and are nearing the level where the market was before the explosive, late April rally began.  In stark contrast, fed cattle prices averaged $136 that same week in April, compared to $118 this week. This is not an unusual swap, as cattle prices almost always average higher in April than July, and packer margins expand in the summer. But it is worth noting nonetheless. Also, much different today than in late April is the basis. On today’s high, Aug LC was less than $2.50 discount to this week’s cash average. The last week of April, Apr LC expired at $128.30, almost $8 under that week’s cash average. It’s also not unusual to see the basis narrow in July and August, but Aug LC has been willing to stay in closer range to cash for a few weeks already.

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.

Funds Flush; Cattle Feeder Weakens

Posted On: 07/06/2017

By Cassie Fish, http://cassandrafish.com

The long-awaited dump by managed funds in CME cattle futures finally got fully underway yesterday in earnest with Aug LC losing 6k on brisk volume. Whether triggered by a calendar and the start of another quarter, liquidation continued today as Aug LC tested the 100-day moving average, not seen since December 2016. Most likely tomorrow’s open interest report will confirm another big drop in Aug LC, a combined roll and net exodus.

Cattle feeders, intimidated by the sell-off in futures, tripped cattle at lower money. In the Corn Belt, there was a trickle at $116-117 followed more light trade today at $117 in Kansas. In eastern Nebraska, some trade at $188 is reported. As the morning has worn on toward noon, a $118 bid was picked up in western Nebraska by a major and Colorado traded at least 2k at $118. Many of the cattle on the showlist have breakevens below $110, and cattle feeders are intent on grabbing profits. It is widely known fed cattle supplies will peak in August and September, and the race is on to stay in front of what is perceived by many as an inevitable decline.

All of the above played beautifully into the packer hands this week. Packers have lost little margin as boxed beef values have declined the past few weeks as they have backed fed cattle prices down in tandem. Packers want to replenish inventories this week and have found doing so easier than expected.

As evidence of the packer prosperity and good beef demand, the actual slaughter totals just released by the USDA showed the industry killed 516,656 fed steer and heifers for the week ended June 24- topping the prior week by a little less and 1k, making it the highest fed kill of 2017 and the largest since July 2013. Total FI kill that week was 638,636 head. The industry is maintaining currentness with this slaughter level.

Steer weights for that same week were unchanged from the prior week, down 9 pounds YOY and down 5 pounds from the 5-year average.

Today, Aug LC reached the lowest level of any spot live cattle contract since mid-December 2016. It is not unusual for cattle futures to retreat to January levels in Q3, nor to make new lows for the year. For bears, expectations are that Aug LC will test the spot low made last December of $107.27, which fulfills the double top chart formation measurement, more or less. Predictions of large cattle supplies yet-to-come in Q3 assure bears this is highly likely.

But for today anyway, futures have shaken off the onslaught of selling and bubbled back to green, bull spreads working- Aug LC comfortable with a $4 basis. Once again pressing the lows proved a mistake. Though this week’s high of $117.22 and last Friday’s settlement of $116.30 feel miles away.

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 Weak; Cash Steady to Higher?

Posted On: 07/05/2017

By Cassie Fish, http://cassandrafish.com

CME cattle futures attempt at early strength faded quickly and a trip back to recent lows in some contracts has ensued. Most active Aug LC once again tested the $114 area, a critical point on the spot weekly chart too. So far, it’s held.

This weakness despite expectations cash fed cattle prices this week will trade at no worse than steady as packers replenish inventory, spurred by continued large profitable margins and fed kills above 500k. Negotiated trade volumes have been sub-100,000 head for 6 out of the last 8 weeks while kills fed kills have mostly been 500k or higher. Obviously, packers have been able to rely on more formula cattle, but given expectations that fed kills will stay above 500k per week the next 3 weeks, negotiated trade volumes may very well pick up some, lending some stability to a fed cash cattle market that has dropped $26 in the last 9 weeks to levels not seen since January 2017.

Monday’s USDA Comprehensive Cutout report showed a modest volume increase from the prior week in spot, +22 day out-front sales and exports.  Lower cutout values appear to have generated some buying interest and there are reasonable expectations that this week will see the same. Granted the volume isn’t as good as earlier in 2017 and the dog days are here but the volume improvement indicates consumers are still picking up beef.

On some items, retailers have allowed their own margins to collapse to remain competitive and drive store traffic, especially on ground beef items. T-bones and strip steaks are still headlined in this week’s ads, though cheaper pork and chicken options are featured too.

The choice cutout has dropped $30 from the high and the rib primal has declined from a record $4.38 to $3.41 per pound. Beef 50s have lost half of the record high value reached in May, slipping under $1 per pound. Once it got going, it’s been a fast and dramatic correction.

Perhaps this market has reached an area where stability can be found, at least for a week or two- in futures and cash, with even the decline in the boxes slowing. More fed cattle will available in August and September, but so far, kills have been large enough for the industry to maintain front-end currentness. There may be more downside left in Q3, but it’s worth keeping in perspective just how much this market has already given up in a relatively short-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.

Happy 4th of July!

The Beef will take a publishing break on Monday, 7/3 and Tuesday, 7/4!  Hope you enjoy some great beef on this Fourth of July!

 

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