Falling Short

By Cassie Fish, http://cassandrafish.com

Last week’s kill came in at 622k, 10k short of most expectations. Obviously, one major packer did pull Saturday kill at two plants, as had been rumored. Since the cattle feeding industry is amid its largest market-ready supply, any week the fed kill drops below 510k is killing too few to fully maintain front-end currentness. This is not good news as the next 60 days sees top-notch cattle feeding performance and a seasonal increase in carcass weights and the number of yield grade 4s and 5s.

The cutout ended the week on its lows Friday, the lowest weekly cutout average for that week in 5 years at 191.65 for choice and the choice/select spread near even. This week’s cutout is expected to erode another $2. This week’s holiday-reduced kill is estimated from 550k-569k compared to last year’s small 529k.

Optimists are calling this week’s cash market steady as packers buy for a full kill week next week. But also well known is that some packers already own cattle for specific plants well through September and are buying for the last week of this month. After all, the cash market has already declined 27% from its Q2 high, so a slowing of the decline is reasonable. Cash cattle prices last week were the lowest for that week since 2010. Last fall, cash prices bottomed in October at $97 and there is concern that price will be revisited this year. But unlike the last 2 years, it is cash leading the market lower, not futures.

CME cattle futures have traded both sides today but the market behavior maintains its consistency- Oct LC is sloppy and the bear spreads continue to widen. Apr LC is nearly $10 premium to the low end of last week’s cash price range.

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.

Ugly

By Cassie Fish, http://cassandrafish.com

The technical performance of Oct LC this week has been horrible. An outside week with a highly likely lower close after failing at key technical overhead resistance- this week’s action has left no question that a bottom is not in sight.

Oct has retraced to the high it made last January of $104.47. Now that it’s September, Oct will be pelted by rollover for the next 2 weeks. Since it’s trading par to cash and there is no reason to believe that next week’s cash price will be any better than steady, the near-term outlook is grim for bulls.

The anticipation of worsening fundamental news in September and October consistently fuels the fire of the decline. There is an abundance of talk about more-than-ample fed cattle supplies in Texas for September, yet formula numbers are supposed to drop- a puzzle. Cattle are reportedly being hauled north to Kansas to die and that is expected to increase. The labor-restricted fed kill capacity concern is the noise dominating the background of all thoughts and conversations. How much is fear-mongering and how much is fact matters little, if at all, until this market has exhausted itself on the down.

Why did the market bottom October 13, 2016? What made that day, ‘the’ day? Some cattle market bottoms have been memorable. Others have not. What is true is anticipation many times has a greater impact than reality itself. Will the industry lose currentness in September heading into fall as cattle weights seasonally increase? Are the numbers really there in Iowa and eastern Nebraska this year?

No way to know until more time goes by.

The cattle feeding industry did a great job getting current and staying current in 2017. Beef demand has grown all year, domestic and export. Packers have run the most +500 weekly fed slaughters since 2013, after adding some staff and picking up line speeds. And up until August, cattle feeders had a profitable year. But now the losses, premium board and lousy swap for replacements have eclipsed the memory of all that went right in 2017. Relief that things went better than expected has been replaced by dread that last year’s Q4 lows won’t hold.

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.

More of the Same

By Cassie Fish, http://cassandrafish.com

Aug and Oct live cattle futures made new lows again today, though the extreme see-saw action has left many at a loss. Is the market bottoming, rejecting the sub-$105 level in Oct LC? Or is the market merely biding its time before it careens lower to the $100 level?

More cash cattle trade has occurred today at the $105 live, $166 dressed price points, steady with yesterday. Trade volume for the week has been light and packers are advertising that plants are full well into September, creating additional marketplace anxiety. Some cattle will likely be carried over into next week.

Boxed beef values have steadied out this week and the choice/select tightened up to close to even money. Beef exports, reported this morning were fantastic, scoring a new high for the year, but then good demand news is not new news.

Futures are exhibiting a split personality. Aug LC expired at the lowest level of any spot cattle contract since Oct LC 2016. Outside days have been posted all over the map, yet some contract months are trading higher, while others, basically Oct LC, look awful. Fall feeders don’t look all that bad while 2018 feeder contracts look potentially played out.

Next week will be the first in September, the beginning of a couple of weeks of longs rolling out of Oct and into Dec and Feb. Dec is already almost $4 over Oct and current cash prices, as the premiums in the deferreds continue to grow.

It’s only Thursday but feels like Friday as traders anticipate the long, holiday weekend, ready to get this week of wild price swings behind it.

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.

Just How Long?

By Cassie Fish, http://cassandrafish.com

It’s been seven years since cash cattle prices have been this cheap in August, occurring last in 2010, the beginning stages of the bull market. In comparison, the beef cutout value has dropped back only to 2012 levels for the same time frame, illustrating clearly the new normal of revenue distribution in the supply chain.

Fed cattle prices, already trading this week in the $105-106 area, are $15 below the 5-year average, $8 below the 10-year average and even with the 20-year average. The last time cattle traded at $105 or less was last November, as the market was coming up off its major low of $98 made in October 2016.

The problem is obviously not beef demand. Or unprofitable packers or retailers. The problem is muted demand for the current large supply of market-ready fed cattle. On a per head basis, current supplies are the largest they’ve since 2013 and for August, possibly 2011.

Many point to labor-related packing plant capacity limitations as the governing factor, but the industry killed more fed cattle in June than in August it appears. June is a great beef demand month and August is not and it will be mid to late September, before it improves, particularly on the choice rib which is the favored item in every Q4. Regardless, packers it appears, are in no hurry despite monster margins.

As August closes out and September begins this week, there doesn’t appear much if anything can alter the choke hold the packer has on the cattle feeder. Fewer formula cattle this fall will at some point, inspire more competition for negotiated cattle.

Technically, CME cattle futures failed miserably yesterday and have followed through on the downside today. Last week’s lows, the lows for the move as well, are in jeopardy and the chart suggests the market is vulnerable for another $3-5 slide. The $100 area in most active Oct LC, a not-out-of-the-question downside objective, hasn’t been visited since February and not since November on a spot basis, which Oct will become on Friday. Positives such as lighter carcass weights YOY and fewer cattle with 120 or even 90 days on feed mean next to nothing to this market under siege. Everyone knows cattle put on fat going into fall and weights and the number of yield grade 4s and 5s will seasonally increase.

At some point, all experienced traders know that packers will find themselves needing to load up again on negotiated fed cattle buys that don’t come as easily and competition will kick in. It’s just not yet.

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.

Bearish or Bullish?

By Cassie Fish, http://cassandrafish.com

Last week’s U.S. beef production was one of the largest in the last four years as market-ready fed cattle supplies reach their highest level since 2013. One week in November 2016 surpassed last week, but it was due to record carcass weights combined with a 501k fed kill.

Interestingly, the large beef production did not send the choice and select cutout values to new lows for the year last week, but merely back to levels seen last February. August typically sees some sort of modest seasonal rally which has not occurred this year. Instead the larger production caused prices to seek a level to clear. And that is exactly what happened.

Last week, sales of boxed beef soared as prices dropped- eager end users scooped up bargains and booked out-front. Both the short-term and the long-term forward sales increased dramatically with the long-term sales reaching a weekly volume seldom seen. No other proof is needed that beef demand, rekindled in Q4 2016, is still alive and well and will rush in to absorb larger production.

Bears are also quick to point out pork production is huge and will increase into fall, and that pork will drag down beef. But as of last week, the pork cutout still has a long way to fall to reach the lows of the last couple of years. It’s also true that no pork item can replace a beef ribeye. As a reminder, the 112a, boneless beef ribeye, reached all-time highs in December 2016.

Speaking of the rib and looking at the rib primal, though it has struggled in August, it has gained loin primal at a record pace. The spread between the two is widest on record for any August, at over $60 per cwt. This spread typically widens in the fall then tops when the rib tops in early December, so this year’s move is way ahead of schedule.

Last week wasn’t the only outlier, as the negotiated fed cattle trade volume came in a low 50k head for 1-14-day delivery and 35k for 15-30-day delivery. Showlists were mixed too. Some say the basis shift has slowed some cattle feeders’ eagerness to sell cattle, but certainly the fear of staying in front of the declining market has not fully subsided either. There seems to be a decent chance cash will trade steady this week, with packer margins well over $100 per head and lots of beef sold in the system.

Industry data shows the number of formula and forward contracted cattle will decline in September and October compared to August. So, the ‘numbers bears’ are banking on the Corn Belt to be full of cattle during that timeframe as was true the last two years. Always a tougher part of the country to quantify supply, many rely on history or anecdotal evidence while others watch weight distributions at fed cattle auctions from Yankton to Tama for a clue. With August almost over, the truth will be known soon enough.

CME cattle futures this week are behaving the opposite of the last couple of weeks. Instead of weak on Monday, and a turnaround Tuesday rally, futures have pulled back today after an impressive performance yesterday. Technically, a close over Monday’s high will fuel another leg up.

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.