A Tale of Two Markets

By Cassie Fish, http://cassandrafish.com

This first full week of September has been full of life-of-contract highs for all 2024 live cattle futures contracts and all feeder cattle contracts. With only 4 months remaining in 2023 and a very bullish long term supply outlook for 2024, the market is clearly looking ahead. Open interest has grown a big chunk this week, up about 12k contracts since last week.

The southern negotiated fed cattle market is also demonstrating strength this week, trading $1 higher at $180 today. What had been the weak link pretty much all of 2023 is no longer. The northern market, which traded at $185 or higher this summer has now softened back to $183, narrowing the spread to the south and the north’s premium to spot futures, which is trading at $183.10 today.

Even with the strength in the south today, October LC put the brakes on this week’s rally today trading lower and losing to the other contracts. It’s the first day of the infamous Goldman roll, so not a surprise. October did make a new high for the month this week but did not take out its contract high established in July.

Even December LC at $187.22 is still discount to the 2023 5-area high reached in June of $188.75. Is cash going to exceed that price during this bull market? Yes. The question being debated is whether or not the packer can keep the throughput pace slow enough to maintain enough front-end leverage, to slow the Q4 cash rally. Packers will not be able to stop the Q4 rally no matter what. In 2024 all bets are off as fed cattle supplies will be excruciatingly tight and fed cattle prices over $200/cwt.

Boxed beef prices have struggled this week, despite compressed production levels. This morning the choice cutout printed at $313.55, up $1.89. A week ago the cutout closed out Friday at $314.49. It’s not a wreck, but it is a grind, though September has never been known as a dynamic beef demand month even in bull market years.

So the cattle futures market will end up higher on the week. Cash will end up steady to higher and boxes a little lower. It’s all just a continuation of the trading range still in play with everyone wondering when the next leg up begins. 

This week’s holiday-shortened slaughter will all depend on the number of plants are in tomorrow. Estimates still range from 570k to 585k.

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