By Cassie Fish, http://cassandrafish.com
Is there more to this rally than a technical correction? Carcass weight data, that came out last Thursday was bullish and followed today by bullish grading data released today that saw Kansas join Texas with less cattle grading choice than a year ago. Total choice+prime dropped nationally below a year ago and all fundamental indications are that market-ready fed cattle supplies are current.
What other indications are there that cattle are smaller and leaner? Beef 50s made a new high for the year yesterday at $94. And while talk is ground beef demand is very good, 90s made a new high for the year as well, 50s are rising counter seasonally.
This is really not news to packers in the north faced with replenishing their inventory week after week, since Nebraska actually traded higher on Friday than earlier in the week. It wasn’t easy to buy cattle in spite of futures imploding simply because supplies are current. The large fed kills in May and June, likely a total of seven at 530k head per week or higher by the time the calendar turns to July, eat through a lot of numbers.
This week’s cash price has a good chance at being $1 to $2 higher than last week, which will put the cash market once again well above a year ago. Thanks to solid and consistent demand for market-ready fed cattle it is likely cash prices will average above a year ago in June, just as they did in May- even though there is greater supply.
Are CME cattle futures finally free of enough liquidation of open interest that the market can respond to better-than-expected fundamentals thus far? Jun LC certainly trades untethered today, gaining on all other contracts, making a new high for the month by surging to the highest point since May 31. The remaining contracts, including Aug LC which had a limit-up close yesterday, are back to reflecting caution towards the prospects for fed cattle prices this summer and fall- nothing new. But perhaps Jun LC, with time running out, will narrow the basis and shake off the bearishness that has dominated the market for weeks. Why not?
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