Enthusiasm

By Cassie Fish, http://cassandrafish.com

CME cattle futures are being fueled, likely by fund buying and a general optimism focused on what is anticipated to be a bullish USDA Cattle Inventory report this week. The much-anticipated report will be released Wednesday afternoon and is expected to confirm declining beef cattle supplies for 2024 and 2025. Of course 2023 was the first year of this cyclical drop and the number of heifers on feed tell us that the industry has not retained heifers to rebuild the herd yet. Part of that reluctance was influenced by drought conditions and low hay stocks and all eyes are on 2024, to see if that changes.

Some analysts are wondering if the USDA won’t revise beef cow numbers up for the last one or two reports, which is not an uncommon move for the agency. In the meantime though, CME cattle futures are continuing to rally, building on last weeks gains.

Friday’s CFTC Commitment of Traders’ report confirmed that as of the January 23 close, commercial players became less long and more short while managed funds did the opposite. That change of ownership likely continued last week and today (to be confirmed in this Friday’s CFTC report). With futures reaching an overbought technical state, it is common as clockwork to see this exact activity on major turns. Most active April LC reached its 100-day moving average today for the first time since October 20, when the market’s break began to accelerate to the downside.

Spot February LC, whose options expire Friday and First Notice Day is next Monday, is lagging behind the rest of the strip and is $3.53 premium to last week’s average cash price. Last week’s big negotiated fed cattle trade volume of 83k head gave packers some ammunition to slow the cash fed cattle rally. Last week’s 5-area average price was $175.44/cwt, up $1.68 from the prior week and the highest cash price since Thanksgiving week. Coupled with the small kill last week of 618k head, its clear packers are in no hurry to use up that inventory. Smaller kills keep boxed beef prices, which gained about $4/cwt last week elevated and are record high for this date, and at the same time slowly add to already large front-end supplies. Saturday’s tiny 5k head slaughter is all the evidence needed to prove that packer has no interest at all in making up the lost kill due to extreme winter weather, close to 70k fed cattle.

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