Futures Downtrend Resumes; Cash Trade in the Wings

CME cattle futures are headed lower again as the teeter totter continues. Though Feb LC on back look like they are no more than cooling their heels before an assault on the highs later, the Oct and Dec LC charts suggest a test of Monday’s lows and a possible look at both the 50% retracement area and the 40-day moving averages, 200 to 300 points lower.

To create that kind of downward momentum, cash fed cattle will need to trade lower this week. So far, very little packer inquiry can be found around, though bids of $155-56 south and $245 dressed north supposedly have been made. And triple digit futures losses this morning certainly will aid the packer in his full-court-press to lower his raw material cost.

The bearish news is abundant in the form of a weaker boxed beef cutout, red packer margins and packers owning more inventory than for quite some time.  And bullish news is absent, at least today.

In fact, the Choice cutout, at $245.91 yesterday, took out the recent low made earlier this month and is now the lowest since, June 26. The loin primal is the weakest link of the carcass right now, dropping to a level not seen since last March and while beef 50s the lowest since April. Neither loins nor 50s typically bottom until October. And heavier cattle out-weights translate into a larger supply of beef 50s, since that’s where about 14% of a carcass ends up.

        OI Up on Up Day

One thing worth noting is the increase in open interest in Live Cattle futures on yesterday’s rally, up almost 5k contracts in most active Dec. We won’t know for a while which market participants were responsible, but if last Friday’s Commitment of Traders’ report was any indication, it’s likely we saw commercials adding to shorts on the rally.

         COF Report Tomorrow

As the marketplace looks for clues as to what’s next in a market that seems to give and take in extreme fashion, tomorrow’s USDA Cattle-on-Feed report isn’t really expected to tell us anything we don’t already know. The industry continues to place fewer cattle than a year ago and market fewer as well. There was one less marketing day in August than in August 2013, which automatically lops 5% off the marketings on a percentage basis. Average analysts estimates are: COF 99.1%; Placed 96%; Marketed 91.4%.

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Disclaimer:  The Beef/CBP shall not be liable for decisions or actions taken based on the data/information/opinions.
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