Volatility Returns

By Cassie Fish, http://cassandrafish.com

Plenty of red is showing in CME cattle futures today as some longs take profits and other traders get short, believing meat demand will be challenged by the economic repercussions of the coronavirus despite the huge package agreed upon in Washington DC last night.

Certainly boxed beef values will likely correct here, though at $256 on choice it’s $23 above the 2019 spring high. It is end cuts that led the rally, the round and chuck primals taking out the 2014/2105 highs this week on a daily quote. Packers have been running ground beef operations at full tilt and though many grocery stores are finally being restocked, the uncertain nature of consumer buying surges remains.

Some assert that consumers are fully stocked but urban dwellers don’t have freezers in the garage or basement. Plus, there has never been a time in modern history when this many Americans are eating all meals at home. What does that even look like? Food service has taken a historic hit, though fast food drive-thru operations continue.

Discussions and hypothesis of how this event will ultimately impact Q2 beef demand, the premier quarter for beef demand, will continue and only time will tell the tale. So far, few if any have forecast much of anything that has taken place accurately, but that won’t keep them from trying to guess what is next.

CME cattle futures continue to keep a historic distance to cash cattle prices, today’s trade, a $120.50 top in the south and a $121 bid currently in eastern Iowa on Angus cattle. Apr LC can’t even stay on stop of $110. Apparently there are a large number of traders who believe the cutout and cash cattle prices will fail again soon. Many look at this rally $19.57 rally in Apr LC as a gift, believing more bad news is coming, even though Apr LC only topped the cash low for the move today by $1.81.

Packer margins are as wide as they were post-Finney but cattle feeders are more concerned with getting inventory sold than $11 higher than 2 weeks ago than they are in trying to access more of the money on the table in the supply chain. Most feel like they’ve gotten out of trap.

Talk is this will be a historic F.I. cattle slaughter, estimates ranging 670k to 675k head. That would be the largest since 2000, and over 50k head greater than last year. The largest weekly beef production total in history for any March.

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