Box Beef Break Compresses Margins; Increases Buying

The USDA’s Comprehensive Boxed Beef cutout has declined three consecutive weeks after making a new high for any June. This price decline coupled with fed cattle prices that have been trading more sideways in comparison has compressed packer margins to likely a breakeven to red for the industry, depending on each plant’s costs.

That’s why the response to run only a 32 hour work week at two plants this week has occurred. This cutback in throughput has put a bottom in boxed beef prices this week. But there were clear signs last week that end user interest was stimulated by the decline in prices. Estimates for this week’s slaughter are in the 620s.

The daily cutout printed higher yesterday afternoon and this morning as the wholesale beef market finds a seasonal bottom this week, a little early. This is good news for packers.

It will be challenging, even with cutting slaughter, to break cash fed cattle prices. Last week’s purchased volume of 64k head included 21k head with time but the overall number is historically small.

CME live cattle futures made their lows in the first several minutes of trading this morning and have since staged a brisk rally. The short term technical indicators are overbought and the market is just hanging out 100 to 120 points above today’s low. With August and October LC discount to cash and the likelihood that cash will be stronger again this week, especially in the north, the downside in futures prices limited.

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