Defensive

By Cassie Fish, http://cassandrafish.com

Most active August live cattle futures closed lower on the week last Friday and below key moving averages. The CFTC’s Commitment of Trader’s report released last Friday afternoon showed an increase in managed fund shorts as of last Tuesday’s close. First notice day for June live cattle futures is today with only16k open this morning, very low. Cash prices last week were $119 to $120 mostly, premium to June which is trading at $116.50 currently.

The best news to come out of last week was the size of the Saturday slaughter clocking in at 98,000 head, the largest Saturday slaughter since the closing of the Cargill Meat Solutions plant Plainview, Texas in 2013. The week-to-date kill was still stymied by the JBS woes and totaled 538k head, the smallest Memorial Day week slaughter since 2016.

That sets up a steep hill to climb for June in terms of a needed increase in the slaughter pace. It remains a test for the beef packing industry to see if it is possible to run harder, above 660k head, for three consecutive weeks. After all it is June, typically the largest fed cattle kills of any year.

Anticipation is growing that boxed beef prices have peaked and will begin to soften, though limited offerings in the spot sales window will provide a kind of support. Still, downside is coming but how much and how long remains to be seen. Only the rib primal last week averaged higher than 2020, when supplies were greatly restricted by Covid, the take away here that rib demand in May and early June has been inelastic. As the calendar shifts to the more casual and hot part of the summer with hamburgers and hot dogs edging out steaks, the rib is expected to correct seasonally.

Expectations for cash cattle prices this week are steady as packers continue to support cattle prices because packer margins are over $900 per head black. Last week’s national trade volume of 65k head was very light and some cattle were again carried over into this week. This has become a theme as of late and the result is the industry is unable to fully clean up front-end supplies, keeping carcass weights high and grading high as well for this time of year.

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