By Cassie Fish, http://cassandrafish.com
Last week’s 5-area average of the negotiated fed cattle cash trade was $175.15, exactly $1.02 higher than the prior week. The packers purchased 75k head, a small number of which 18k were purchased with time. So another week has gone by with the packer unable to break cash. Packers cut kills for 5 consecutive weeks but the last two weeks, increased weekly slaughter to over 640k head. This increase is seasonal, and a bit late, and illustrates the packing industry carefully managing throughput. Throughput, and specifically Saturday slaughter, is and will continue to be the key to packers managing tight fed cattle supplies.
Packers will try and break cash prices again this week and given it’s a long week buying for a short week, may have better luck.
Boxed beef values last week did weaken, led by the rib and beef 50s. Last week’s average choice price was $299.80, down from $306.63 the prior week. This means packer margins though black, tightened some. The rib has a $25/cwt break and may well experience a secondary rally generated by renewed buying interest at cheaper money.
CME cattle futures have traded red all day today. With Friday’s neutral USDA Cattle-on-Feed report behind the market, futures have refocused on the seasonal decline in cash prices. Spot June LC is $10 discount to last week’s cash.
Technically, CME live cattle futures have rolled over for now. More than likely the last three days of last week saw commercial selling by cattle feeders and managed fund buying – an exchange that commonly marks a turn in cattle futures. The Commitment of Traders report for that time will be released Friday afternoon.
For now it is a game of time and price—futures assuming a summer low in cash prices will occur and therefore, prices are what is seen as ‘reasonably discount’. At some point though, if cash is stubbornly refusing to break quick enough fast enough, the discount may seem too deep. Bearish traders believe a summer low sub-$160 is coming, but futures aren’t daring enough to price something that extreme, though the low today in August LC is $162.77.
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