By Cassie Fish, http://cassandrafish.com
Beef cutout values are barreling higher and likely just getting started. Up almost $5 for choice at $235.30, (about $13 higher than last week’s low) and up almost $4 for select, the lean cuts and fat trim are leading the charge. Even the rib primal is $10 off its lows as retailers respond to price and the calendar, as May draws near.
The week ended April 4, the cutout was $232, cheaper than today, and cash cattle prices were $109. Cash cattle this week have yet to trade in any meaningful volume- but it does present a quandary. The week ended April 4 the packing industry slaughtered 631k cattle, 5k more than estimated and 501,400 of them were fed cattle. Last week plant production was arbitrarily contracted because of coronavirus-related issues with labor and the F.I. slaughter was only 536K. It is a fact that packer expenses have increased because of the virus and efficiencies have declined with the drop in capacity utilization in some plants last week and this week. Yet the packing industry remains profitable.
Packers are working to restore production to normal and by next week, their efforts will be recognizable and will build from there. The call to reopen parts of the U.S. for business, including food service, is gaining momentum. The pipelines that serve that segment are empty and will need product.
Packers may not need many cattle now but that will change in the coming weeks. As has been mentioned here many times, the fed kill in Q1 over delivered and the industry could not have been in better shape on the front-end coming into this forced slaughter contraction- especially in the face of a very open winter. Still the stress of not being able to get a bid or schedule cattle is real and highly frustrating. Smaller feeders in the north are perhaps feeling the pressure the greatest.
Most packers are playing it cool and waiting until tomorrow to establish this week’s cash cattle price. Where will that price be? Despite some calls for lower, steady with last week’s $105 given the strength in cutout values seems a reasonable call during these highly unusual times.
CME cattle futures are triple digit green again today and continue to look ahead at brighter days, the reopening of food service over the summer, the grilling season of May and June. Given the extreme disaster Jun LC priced on its low, what’s a few more limit up days? After all the lowest cash cattle price since 2016 is $97. Prior to that it was $84 in 2010.
Copyright © 2020 the Beef Read. All rights reserved
The Beef is published by Consolidated Beef Producers
Use of part or all of this blog for any reason without permission is strictly prohibited.
Disclaimer: The Beef, CBP, Cassie Fish nor NFC Frontier Capital Markets shall not be liable for decisions or actions taken based on the data/information/opinions.
This material has been prepared by a sales or trading employee or agent of New Frontier Capital Markets and is, or is in the nature of, a solicitation. This material is not a research report prepared by New Frontier Capital Markets. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that New Frontier Capital Markets believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.