By Cassie Fish, http://cassandrafish.com
Bulls believe the break is over and the market is going to hold the 100-day moving average in Apr LC and the 40-day moving average in Jun LC and rally. It has been a sizeable break in short order. Most active Jun LC has dropped 577 points since topping last Friday, so whether bullish or bearish, it’s understandable that the market would take a breather here.
The sobering fact though is that extremely key long-term support levels loom just beneath the market, looking at both spot and the Apr LC chart. Not only did Apr make a new low for the month yesterday but it came within 17 cents of the February low. Bull markets generally do not take out the prior month’s low after a long-term uptrend. The February low made by Apr LC, $125.75, is still above the spot low made in February by then spot Feb LC, which was $124.84, but the point here is many critical support points lie just beneath.
Yesterday’s break didn’t appear to be accompanying by much if any fund liquidation, so the threat of the flood gates of fund selling opening remains.
Cash Downtrend Begins
Packers have successfully begun backing negotiated cash cattle prices down and last week was likely the spring seasonal high for 2019. Prices were $2-3 lower and cattle have continued to trade at $125 to $126 today with as long as 21 days for pick up. Early reports show the national trade volume at 67k total head traded with Iowa and Nebraska totally 38k head between the two states. Expect packers to keep the pressure on going forward. Seasonally cash prices tend to break into the third week of April historically.
Boxed beef prices experience a similar seasonal and are expected to decline into the same time frame. The kill this week and next week is expected to be 625k to 630k head, just under last week’s 631k, as slaughter finally begins to pick up. Non-fed kill though is running about 22% of the weekly total, above a year ago.
Carcass weights are falling sharply, steer carcasses for week ended March 16 weighed a mere 865 pounds, down 12 pounds from a year ago. Unfortunately, the industry has such a large number of cattle on feed with out-dates between May 1 and September 1, that the number of head available to slaughter will offset the bullishness of the lighter weight carcasses. The degree of this ‘offset’ can be debated, but because of slaughter capacity limitations, it will allow the packer a great deal of leverage, despite each carcass producing fewer pounds.
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