Massive Long Liquidation Continues

By Cassie Fish, http://cassandrafish.com

CME live cattle futures lost another 3,875 contracts yesterday as total open interest sinks even lower, down to 343,486 contracts, the lowest since November 4. Cattle have dropped almost 15% of its OI in 9 trading days. It is not an exaggeration to say, get me out selling is over, the market will struggle to find a bottom.  Money flow is the dominate market factor.

Live cattle futures are green today, after putting in a decent performance yesterday, but the market has yet to ‘get up and get out’ of here. A close above the 10-day moving average, just overhead, would spark follow through buying. Also true, technical indicators have turned up and pressing the market down here from the short side is wrought with danger.

         The Fundamentals

Current record beef production is pressuring boxed beef values. The last two years the cutout bottomed in January but historically the cutout bottomed in February, usually by the third week. This year is likely to see weakness the next couple of weeks. There is talk this week’s kill will be 635k head, down from last week’s 640k. This compares to 625k head a year ago and 639k head in 2011, when the industry had slightly more cattle on feed than it does today.

Packers are benefiting from black margins and running the highest slaughter volume since 2011.

Bids in the country are hard to find, packers playing it cool and taking advantage of the nervousness amongst cattle feeders thanks to the shellacking futures have taken in less than 2 weeks. In the north, packers indicate a willingness to call if cattle were priced at steady with last week, but that’s about it. In Iowa a very few cattle have traded lower than last week. No doubt the packer will be patient and see what unfolds. Supplies of market-ready cattle are tight, but so far, that reality has given the cattle feeder much advantage.

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