By Cassie Fish, http://cassandrafish.com 

CME cattle futures are stretched, very overbought and have hovered around unchanged all day. If the market closes lower, then it would post a hook down on a quiet trading day. Futures have ignored the news that another dairy worker in Michigan contracted bird flu from a cow. Futures act tired today and one has to wonder if another top is in the making. Open interest has risen close to 9k contracts the past two trading days, likely a big increase in managed fund long and commercial shorts but that won’t be confirmed until May 31.

Futures are also ignoring a disappointing wholesale beef market, which has eroded the last couple of days after reaching the March high last Friday. This is the packers’ problem and no one else’s, and he has the negative margins to prove it.

Instead, the market’s primary, if not sole focus is on the strong negotiated fed cattle market, as cattle feeders enjoy all the leverage at present. Negotiated fed cattle in Texas and Kansas have sold today at $187, $1 higher than a week ago and the highest since March. The north is holding out for new highs for the year and there are bids as high as $302 dressed and $192 live being passed.

The USDA released it’s carcass weight data this morning and steer weights are 32 pounds above a year ago at 923 pounds, another record for this date. In a normal year weights would decline until Memorial Day week when they would begin to rise until topping at Thanksgiving. All are aware that this spring’s carcass weights showing zero decline is an anomaly and proof cattle feeders are feeding cattle much longer to much heavier weights. This has reduced the number of cattle that would be for sale in this timeframe and that fact is supporting fed cattle prices this May. With feeder cattle supplies tight, cattle feeders would rather keep cattle in the yard as long as possible rather than face declining occupancy. The extra weight is netting dollars needed to cover high breakevens. This is the single most important fundamental factor today.

Tomorrow’s USDA Cattle-on-Feed report will have a bullish appearance. Thanks to two extra harvest days, marketings will be up 9 to 10 percent from a year ago. Placements will be down 6-7 percent leaving COF down about 0.5 to 0.9 percent, finally dropping below a year ago.

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