By Cassie Fish, http://cassandrafish.com
Once again CME cattle futures staged an underwhelming response to a plethora of good news. Though there has been a delay in the final tally of Friday’s higher cash cattle trade, higher it was, posting a new Q4 high with a $118.50 top. On top of that a winter storm hit Nebraska squarely beginning Friday with heavy rains that turning to snow leaving pen conditions in many places messy. Add in a favorably seen G-20 meeting between the U.S. and China and a 200-point rally didn’t seem out of the question.
Instead futures opened higher, though spot Dec LC failed to take out it’s November 2 high of $117.85 then slowly slid to barely green on the day. Most active Feb LC is losing to all other months today though is still holding $120. Disappointing? Yes, but not necessarily bearish either as the futures market continues to chop sideways.
What’s on tap? The cutout will begin to drop next week as the clock runs out on coveted ribs and tenders. The kill will begin to contract before a very small Christmas week kill is posted.
Some feel this week’s cash cattle price could push higher again as market-ready inventory in some parts of the country drops hard now that the large supplies of 2018 are in the rear-view mirror. This week’s showlist though showed a surprising jump in Kansas, so perhaps all are not out of the woods just yet.
Packers are in adjustment mode, gearing down seasonally rather than gearing up as occurs in April. Fed kills will drop below 500k head per week in Q1, even if they are a little larger than last year. So, packers have one eye on the big holiday shipments to the end user and the other on the need to adjust for smaller supply and lighter demand for Q1 2019.
Cattle feeders are relieved to finally have made it through the largest number of fed cattle marketings since 2011. And it certainly appears there will be more weather impacting cattle performance this year, which ought to keep weights even to below last year, which will help support the market. Cash prices may not rally big between now and the end of the year, but the downside appears to be modest and even minimal.
When Feb and Apr LC reached $123.90 and $124.92 in early October, did the market price the Q1 high at that time? Are futures going to let cash take the lead from here, content to chop sideways over the next 3-4 months? Last year, cash reached $130 in February, though data suggests the industry will market more cattle this February than in 2018.
The most recent CFTC Commitment of Traders’ report showed a +10k contract increase in commercial shorts that last 2 weeks, so at least some cattle feeders have taken risk off the table rather than gamble on more upside in Q1.
It wouldn’t be a market without plenty of opinions. Right now, there are more opinions than there is volatility as the market continues to indicate its comfortably priced- for now.