Rolling Over

By Cassie Fish, http://cassandrafish.com 

CME cattle futures rallied early then failed, the December and February contracts already taking out last Friday’s low, which was the day of the big rally. This week, futures have ignored the powerful news of all-time highs in the negotiated fed cattle market, content to keep their distance—and their discount. It would appear whoever bought the market last Friday, the day of +300 point gains, were one and done. Tuesday’s volume was a tiny 36k contracts and futures performance all this week has been underwhelming.

Spot June LC has posted an outside day but is back to clinging to green. With a $187.52 high June has failed so far to challenge the all-time spot futures high of $190.27 established in March, even though cash fed cattle prices pranced to new highs last week, the 5-area average $192.55 beating the old high established in May of $190.09 handily.

This is not unusual on major tops, that futures become more of a spectator than a participant. Afterall, lots of commercial short hedgers need a rally to sell to lay off high priced inventory for later this year.

The choice wholesale boxed beef market has been hanging out near the $320/cwt mark all week, printing down $0.30 cents this morning. The loin lost a lot of ground yesterday and the rib is expected to be right behind it with seasonally lower prices anticipated. The tight supply of lean product thanks to low cow slaughter this morning, will continue to lend aid to some fed cattle cuts.

Packers are doing their best to limit red ink and have had slaughter dialed back to the lowest level since 2016 since Memorial Day week. This week’s estimate is 610k to 615k head. These low slaughters may cushion the decline in the cutout and certainly record carcass weights are offsetting production cuts somewhat, but not entirely.

That leaves us with the negotiated fed cattle trade, which as of this morning has seen 2.9k head trade at generally steady prices, though a little higher in some instances. Last week’s 96k head negotiated buy might have been large enough to allow packers to top the cash, but that remains to be seen as trade waits to begin in earnest. The cattle feeders are still exercising their leverage.

The USDA’s Cattle-on-Feed report tomorrow is generally expected to be supportive for the market confirming a decline in numbers from a year ago—unless placements and thus, COF June 1 numbers are higher than average expectations.  

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