By Cassie Fish, http://cassandrafish.com
CME feeder cattle futures have spent most the day in the red despite a bullishly construed cattle inventory report. In fact, feeders haven’t acted good since topping in early January and continue to struggle, losing to live cattle futures. A short soybean crop in South America has lit a fire under U.S. soybean values and there will be a fight for acres in between corn and beans this spring. Though corn looked perilously toppy yesterday, it has come barreling back today leaving feeders leaking red.
Also, the USDA revised the 2020 calf crop upwards 360,000 head, and the entire cattle population as of January 1, 2021 upwards 195,000. So our ‘less than’ numbers for January 2022 are less than more than the industry knew they had. The beef cowherd is in liquidation a liquidation phase, accelerated by the drought, with Montana, the hardest hit state seeing the biggest drop in numbers. Kansas and Nebraska saw a 20k head increase in heifer retention, so reducing the cowherd is not universal.
CME live cattle futures are testing big overhead technical resistance today, back at the top side of the long-lived trading range with spot February LC just under it’s 2022 high of $140.40, which was the high of a weekly reversal lower the first week of January. As the day has progressed, the market appears to be gaining momentum. Spot highs from 2015 and 2016 loom overhead for spot February also—$142.10 and $141.90 respectively. Most active April LC is higher too but losing on the spreads to all other contract months. February’s contract high is $141.84 made in November.
There has been some very light cash trade this morning at $137 to $139 and a $220 dressed bid from a regional packer just surfaced, $2 higher dressed than a week ago. Cattle feeders are pricing cattle higher and if there was a week to see prices advance, it would be this one given the optimism swelling in almost all commentary.
Seasonally an advance ought to be imminent and the cash market strong over the next 4-6 weeks. It will be up to the packers to balance supply, demand, and throughput. Packer margins will likely contract but remain solidly profitable.
Yesterday’s USDA Comprehensive Boxed Beef report showed an improvement in volume and a noticeable increase in export sales.
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