Futures Stout; Cash Standoff

Posted on:  11/11/2016

By Cassie Fish, http://cassandrafish.com

CME live cattle futures aren’t backing down this morning, making another new high for the week and holding gains. Technical indicators look positive as does the market structure itself. Futures strength has not transferred to the cash cattle market though, as packers play it cool and refuse to up bids, resulting in no trade as Friday approaches midday.

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There’s a good chance the market will close higher on the week and if Dec LC could take out $106 and close higher, a monster outside week with a higher close could occur. As it stands now, that’s a big if, with the high of today 52 points beneath that important area and no help yet from the cash trade.

There’s another month of seasonal support on the beef side and possibly a few pockets of tighter fed cattle supplies which are combining to support the market here. One major cautionary note, yesterday’s release of USDA actual weight data showing carcass weights increasing to only 3 pounds below last year’s record. Blame it on superb weather and heavy placement weights- pounds are pounds.

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The rib continues its impressive advance, up $6 yesterday and over $14 on the week. The rest of the carcass is managing to stabilize but choice boxes are still over $3 cheaper than a week ago.

This week’s kill was expected to be 614k but talk that a couple of plants may be dark today and tomorrow could keep the kill between 600-610k, still brisk enough. It’s understandable though with beef production large and beef sales a slog on some items, the reluctance of packers to aggressively chase cattle today, even with black margins. Managing throughput well is how packers carved out their new normal in margins and that business practice won’t be abandoned. Still, packers seem to need a few cattle and won’t be able to sit out this week’s buy entirely.

Cash cattle prices will likely trade close to steady to last week, which averaged $104.31, which if true, would be the third week in a row near the $104 mark and $7 off the low. Numbers may be tightening some, but there are 3 holiday-reduced kill weeks coming up over the next 8 weeks. Cash cattle prices skipped the $107-108 area in September and October, so trading at that price level in the coming few weeks would fill a “cash gap”.

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