Something New

Posted On: 12/05/2016

By Cassie Fish, http://cassandrafish.com

CME live cattle futures have traded both sides today following a downside correction that began late last week and finished with an outside week with a lower close after making a new high for the move. What’s new is that so far, live cattle contract months through Jun LC have held the 100-day moving average thus far. After providing iron-clad resistance for months, it is now offering support.

This current market correction is being viewed as normal, rather than wrought with fear and uncertainty, as was the case many times in the last couple of years. Whether warranted or not remains to be seen, but better packer competition, improved front-end currentness and the onset of winter weather are all contributing to a sense the cattle market has finally stabilized. Furthermore, the well-documented surge in beef production these past weeks has been met with active retail featuring and exceptional strength in the rib despite big supplies. Export demand has been terrific also and when combining these factors, there is a growing outlook the market is finally carving out a reasonable trading range.

This week’s expectations are wide-ranging on slaughter, from 600k to 612k. Some packers are rumored to be backing down hours as margins have contracted significantly. Beef sellers will try to squeeze a few more dollars from buyers this week, but the cutout is losing steam. Last week, the some grinding complex items declined with new lows for 2016 noted in 73s, 90s while the choice/select spread surged to new- even with record choice/prime production.  Ground beef must compete head-to-head with cheap pork and poultry, a tougher task than that of the highly-desired rib.

         Dec LC Struggling

PrintThe bear spreads are working today as Dec LC suffers. Last week, Dec LC filled a gap on the spot daily chart last week left on the last day of trading by Aug LC. Aug LC’s high that day was $113 and Dec LC stalled out at $112.25. Dec LC did manage to trade to the highest level it had traded since Aug 22, but the spot chart does provide an interesting perspective. After this week, it becomes seasonally more difficult for Dec to mount a rally and unless weather comes into play, Dec LC will begin to look ahead to second half of the month seasonal weakness.

The market will likely have to wait for Feb LC to take command in January to see if $113 can be bested and a check of the Aug spot high of $117.75 can occur.

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