By Cassie Fish, http://cassandrafish.com
Negotiated fed cattle prices have been steady in the $120 area for many weeks as packers support prices, buying only modest volume weekly. It’s as if the entire industry is marking time until boxed beef values finally correct, after a bizarre and awe-inspiring run over $340 basis choice.
Once that correction begins, which feels imminent, the pace and amount of the decline will dictate how packers behave when it comes to cash cattle prices. The entire complex may just step down in orderly fashion rather than a huge break like occurred last year after plants started running normally again over the summer.
The probability is that both boxed beef prices and cash cattle prices will work lower in July. Aug LC is trading defensively, but at $117.75 isn’t pricing in much of a break. The 2022 contracts all over $130, have priced in better days and the Q4 contracts between $123 and $129 also reflect higher prices than the market has seen since April 2019. Fed cattle supplies for second half 2021 are forecasted to be less than a year ago easily and fewer than 2019 also.
The issue is simple. Front-end currentness has not been restored due to uneven and generally inadequate slaughter schedules in Q2 2021. June will be the test. This week’s slaughter could approach 670k head, which would be positive. The question is whether the industry can kill three consecutive weeks at 670k. In the past, it was easy to do so in June when cattle supplies were normal. June’s slaughter level will tell this industry quite a bit about what limitations related to labor are here to stay for the foreseeable futures and what can be overcome.
With packer margins near $1000 per head last week net, the incentive is certainly clear.
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