By Cassie Fish, http://cassandrafish.com
Last week was one of the smallest negotiated fed cattle trade volume ever reported. Packers purchased 38k head, 5k of which were with time. This is the second week in a row of historically light negotiated trade volume, so how are packers supplying slaughter? No doubt it has to be the formula and forward contracted cattle, which already provide the majority of supply, are providing an even higher percentage than typically.
Packers did pay up ever so slightly about 40 cents on average the prior week, yet they fought hard to hold the line. Last week’s slaughter was an improvement of 617k head, but still light and today started off with a 115k head, when most expected to see 120k. Early expectations for this week’s slaughter were 630k head, which if true, would be constructive.
Packer margins have rebounded thanks to a huge rally in boxed values in the last couple of weeks, supported by the big production cuts in January. The focus on the packing industry appears to be on holding margins together at the cost of keeping kills curtailed and cash market purchases small. The effect here has been and continues to be, to slowly and incrementally back up market-ready fed cattle.
Friday’s USDA Cattle-on-Feed report was on the nose of average guesses and generally positive, but the report, was ignored almost immediately. A closer look shows cattle on feed more than 120 days is historically high and the weather related loss in slaughter much of January has hurt the progress made in December by more robust kills.
Futures have rolled over once again after last week’s high for the move on the Thursday. There is nothing compelling at present to propel futures higher yet the calendar and plenty of winter left certainly reduce the enthusiasm for pressing the market here. It is a market that one could argue, is decently priced.
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