By Cassie Fish, http://cassandrafish.com
Since Monday’s wipeout, futures ignored bad news all week, mainly new cash fed cattle low for the year made at $106 a couple of days ago. As this morning wore on, futures steadily and impressively gained ground, then the cash market started to gain strength, prices first at $107, then $107.50 then $108 as packers scramble to secure inventory. The gamble of letting inventories dwindle had paid off for packers for a while, but the need to reload won out today.
Plus, this week’s expected lighter fed kill softened the seasonal weakness of beef prices, so packer margins actually expanded this week, adding incentive and turning thoughts to ramping up kills for the 3 weeks post next week’s holiday. Packers have a great opportunity to get their next quarter off to an exceptionally profitable start, with one of the largest summer sold-ahead positions on the books in years, plenty of cattle to kill and record margins. Demand has simply made working through the large fed cattle supply easier than most expected.
Feeder Demand Strong Too
Demand for cash feeder cattle is growing also as empty pens begin to surface more commonly and a profitable year in the feedyard business has eyes turned to a reload there as well. Cash feeder prices have been creeping steadily higher for a good 2 weeks and that is expected to continue.
Futures Feel Fine
CME cattle futures continue to consistently signal the lows made in Q2 were low enough, and each day sees this market looking further out front, now that showlists in the south either have or are topping.
Despite the positive performance, only spot Jun LC, long forgotten by most traders, is higher on the week, after posting an outside week. Though it only has less than an hour to trade and came in with about 300 contracts open, it’s worth noting it will expire its highest since February. On a spot basis, the Jun’s $101.37 low, established in May, stands as the likely spot low for the 2018 and today’s settlement the lowest since spot Aug LC 2017’s expiration, which marked the 2017 low.
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