By Cassie Fish, http://cassandrafish.com
It’s Monday and all CME live cattle and feeder cattle contracts have made new highs for the move, with the exception of Dec LC and Nov FC. The CFTC Commitment of Traders’ report released Friday confirmed short hedger continue to sell the rally, funds continue to cover shorts and add to longs and commercial have begun to add to longs. Commercials will continue to add to longs throughout the curve in the coming weeks to cover fixed priced forward boxed beef sales.
Dec LC has flattened out its chart pattern but is holding in the $118 to $120 area as cash slowly advances. Last week’s negotiated fed cattle trade volume was 120k head, with the largest volume in the north at 74k of the total. The top cash price paid was $117, though it was scarce and $116 topped the western Nebraska cash trade. The south traded at mostly $115, a $3 improvement so the average ought to be close to $115.80 or so, almost $3 higher than last week.
Given the explosive boxed beef values, led now by the ends and trim, packers will continue to run plants hard. Cutout values are over $20 above last year and packer margins are record wide. Last week’s slaughter was 651k head and this week, thanks to Veteran’s Day holiday, is estimated at 648k, equal to a year ago. Big kills need to be supplied which will support continued excellent fed cattle demand.
Would the industry be killing more cattle with Finney open today than it has been? That question can’t be answered. But what is true is that industry has operated at the highest maximum capacity utilization over many, many weeks than was believed possible. Packers have slaughtered more cattle than a year ago the last 8 consecutive weeks.
There is a lot of conversation regarding how overbought futures which supports disbelief abut the entire futures rally. But these are very unusual times and it is wise to remember that fact. A major plant will be coming back online in the next 60 days. ASF has forced global manufacturing beef prices sharply higher with no top in sight. Packer margins are record by over $100 per head.
Plentiful supply is being met with historically strong demand and fetching record prices when compared with the level of production. Only seven and a half weeks remain in Q4 and filling orders and capturing sales realizations will drive every decision made in the packing industry.
Perhaps once middles top in early December and shipments for Chinese New Year January 25 have been loaded on ships the cutout will take a significant breather. But it is only November 11 and commerce is ruling the day.
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