One Direction

Posted on:  6/23/2017

By Cassie Fish, http://cassandrafish.com

If CME live cattle futures close lower today, it will be the 11th lower close in a row. Every few hours, futures seem to find an impetus for enough of an intra-day rally to relieve the oversold compression before working lower yet again. It has been an orderly and methodical down with relatively modest volume and only modest open interest declines.

Today’s rally inspiration can be tied to the news that the USDA has halted imports of fresh Brazilian beef, a process that had just opened last fall. The U.S. does not rely significantly on Brazil as a beef source and the type of beef imported goes into grinding operations, so it is not expected to have a material impact.

Aug LC will not only close lower on the week but will close the lowest since mid-April. A great number of long positions were rolled from Jun LC to Aug LC in May, meaning those positions are substantial losers.

Rather than driven primarily by fear, this break seems to draw in bottom pickers and naysayers. Bulls point to the fact that the cattle feeding industry is current and 2017 beef demand has been stellar, but those two facts are not enough to stay a seasonal summer decline.

Boxes have lost about $7 this week and will decline more than that next week and on into July. Packers look to have bought around 80k head this week, which appears to be plenty for them, but not quite enough for the cattle feeder, some of whom will carry cattle forward into next week. This fact is the single most concerning if it continues consistently in the coming months.

This week’s cash fed cattle price took out the important swing low made the week ended April 3, $124.33, the 5-Area average as reported by the USDA. The market has returned quickly to the $118-122 area where it stood in January and early February. Beyond that, it’s back to cash cattle prices not seen since Q4 2016.

Today’s USDA Cattle-on-Feed report is expected to confirm what we already know- the industry marketed fed cattle aggressively in May and placed a ton of cattle as well. It is unlikely there are any surprises here.

         Some Good News

Yesterday’s actual slaughter data for the week ended June 10 was better than expected, with total cattle slaughter at 635,985 head, the largest since October 2013 and the fed kill at 511,830 head, also the highest since 2013. It’s imperative that this trend continue in order for the industry to maintain currentness from now through the fall.

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