By Cassie Fish, http://cassandrafish.com
CME cattle futures sold off early but didnâ€™t stay down long as new highs were in the bag 40 minutes later. Aug LC has landed on the north side of the 100-day moving average and has a nice potential flag formation on the chart pointing towards $120. Aug has also gotten within a quarter of last weekâ€™s 5-area average steer price, the narrowest in its time as lead month. Back in the day, a pop $2 over cash would be normal but no one is betting on that in 2016.
Futures have had a big up, so some backing and filling is expected. The deferred live cattle months donâ€™t look quite as dynamic on the charts as Aug LC or feeder cattle futures. Ever cheapening corn, which is trading perilously close to the 2014 major low, is boosting feeder futures along with the summer low being posted in fats. The 100-day in Aug FC is $146.40, surpassed today momentarily.
Last weekâ€™s negotiated trade once again turned out larger than it felt, with 98k head changing hands. Even so, some plants for some packers, especially in the north, need to be back in this weekâ€™s market to keep things going. Cash is expected to be $1-3 higher this week compared to last weekâ€™s average of $117.
Thereâ€™s talk that this weekâ€™s kill could dip slightly under last weekâ€™s 581k while others predict 585k. Boxed beef prices will lag the cash cattle and futures prices for a while on the way up, but packer margins were black on the turn. Still the packer wants to stay in the dominate position here, so forcing end users to accept the fact that the summer low is in is this weekâ€™s job. Continued good clearance at the consumer level is still a critical key.
Itâ€™s hard to believe Oct LC has already rallied almost $10 off of their low made 8 days ago. Yet Oct is still discount to Aug and cash, pricing zero seasonal rally, even though both cash cattle and boxed beef prices are behaving, for the most part, pretty seasonally this year. That certainly says more clearly than anyone can, that the underlying bearish outlook still persists.
The rally from the Q3 low to the Q4 high it appears will be led by stronger cash cattle prices, pulling the front LC month along. Thereâ€™s no reason to think the middle meat rally going into October and November will be any less stellar than the spring rib and loin rally and ought to keep packer margins positive, making 2016 potentially the most profitable year in beef packing industry history.