Wrapping Up

By Cassie Fish, http://cassandrafish.com

It’s been another solid week of negotiated fed cattle trade, the 5-area volume pushing 95k head with Nebraska making up 42k of the total. Between the two of them, Kansas and Texas have racked up 28k head and Iowa 25k. Average prices have slipped to $100 live and $157 dressed yesterday as the week has worn on and on.

It is encouraging to see all aspects of trade- boxed beef volume, fed cattle trade volume and slaughter normalize. Unfortunately, the backlog created by an 8-weeks severe production reduction still exists.

Choice boxed beef prices have dropped $22 on the week and have taken a quiet breath at the $214 level. The beef pipeline is still not fully refilled but once it has been, price pressure will increase again.

CME cattle futures are still contentedly winding sideways, spot Jun LC a little lower on the week and most active Aug LC barely hanging on to higher on the week, the premium favoring the Aug by 40 cents. Ten deliveries tendered in Dodge City against spot Jun have applied some pressure there. Open interest is 16k off the low for the year near 274k and volume is extremely light.

This afternoon’s USDA Cattle-on-Feed report will show historically low marketings, even when adjusted for less slaughter days, and expectations for placements are 2% below last year. The net result will be an increase of 670k head, give or take, of cattle on feed June 1 compared to May 1. Normally analysts don’t look at cattle on feed data this way but because a true black swan event made it impossible to slaughter fed cattle at a normal pace for 8 consecutive weeks, the number of head placed on top of cattle that did not die on schedule becomes of paramount importance. Especially when many of the cattle placed in May were heavy feeder cattle moving off wheat that have outdates in August and September. Today’s release will include useful weight-breakdown data so that a clearer picture of the distribution of the supply can be refined to gain sharper clarity on the length and breadth of the backlog.

If the packing industry, due to the challenge of running every single Saturday begins to utilize only every other Saturday in July for production, that will further backlog cattle into August and push the number of heavies and overfats higher.

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