Futures Impressive; Cash a Little Less So

By Cassie Fish, http://cassandrafish.com

CME cattle futures made some excellent technical conquests Friday and haven’t given back much today, in spite of cash prices west and south that traded mostly $2 higher on the week at $138, double topping at the 2016 high. Packers played it pretty cool and once again pressed trade again into Friday evening and Saturday morning. A few hold outs in northeastern Colorado supposedly got $139 on Saturday, which, if it’s fact, would be a new high for the year. Still, the packer continues to display an unexpectedly rigid discipline in the face of tighter fed cattle supplies seasonally.

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Lead month Apr LC on the other hand, exhibited definitively bullish behavior Friday, taking out the spot high made by Feb, topping out at $141.12 before retrenching. Still, it was a stellar outside week with a higher close and the highest a spot live cattle month has traded since the week ended November 1.

Today, the steeply discounted back months are gaining on Apr and even Jun LC. Perhaps the heavy hedge selling seen as of late has abated for a minute, allowing the huge discounts to narrow some.

Last week’s slaughter exceeded expectations by 2k at 536k but more importantly was 8k head above a year ago. Two of the last 3 weeks, total beef production has exceeded not only a 2015 but 2014 as well. Yet at the same time, the choice rib, loin and flank primals were record high for last week. How else can that fact be explained if it weren’t for better demand for cuts from these primals.

Boxes ended the week strong on the best weekly spot volume for choice and select of 2016. The cutout is expected to add value this week now that the chuck and round have finally found a bottom. Packer margins have managed to claw back to near steady, buoyed especially by beef 50s which are expected to reach a near-term high shortly if they haven’t already. Still for mid-March, margins are likely better than most any year in history except 2014 when the ground beef sector was less of a drag than it is presently. If margins stay on their present course, Q1 2016 will end up being a better quarter than packing companies expected, which ought to be supportive of ample slaughter levels for fed cattle, so important in Q2, particularly as it relates to currentness heading into Q3.

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