Cattle Market... A Case for Sideways
Cassie Fish --
CME cattle futures
continue to trade both sides, early action taking out Tuesdayís low only
to find the market clawing back to green. Taking out $107.95 and making
a new high for the week would be a good start in confirming the market
has a solid underpinning, while taking out last weekís high of $108.55
would cinch it. Bears are focused on the vulnerability of $104.30 (only
100 points below todayís low) amidst fear that if futures were to return
to sub-$105, the market would fail to the $101 area taking cash with it.
So, the lines are
clearly drawn and the sideways action continues as the hours tick by.
Todayís FCE on-line
auction had one pen trade at steady with last week. For all the nervousness-
and cattle feeder worry has again grown each day this week- steady cash
is likely the worst of it, which would make 3 weeks in a row of a $104-105
range. The packersí chore of buying more volume this week may end up being
relatively easy. Though an additional futures rally, particularly in Oct
LC, could make it more difficult.
Overall though packer
confidence remains high that ample fed cattle supplies, extremely profitable
margins and producer psychology will allow them to maintain the significant
leverage they have over the cattle feeder. Bids of $165 and $105 have been
noted in spots, though lower bids are being floated as well. Well off the
radar screen, an eastern Iowa fed cattle auction topped at $110.35 today
to a major to fill an eastern Corn Belt plant.
Boxed beef values
are stagnant and the choice/select spread has narrowed to even. The last
time the choice/select spread was this narrow was mid-February when it,
and the cutout as whole, bottomed. The relatively high price of beef 90CL
trim has lent support to some select cuts as has generally solid ground
beef features and demand. And itís just a touch early for the seasonal
strength in choice middles.
The wrecks of the
last two falls will haunt cattle sellers and traders for at least a few
weeks longer. Just the simple knowledge that carcass weights seasonally
increase until November 1, coupled with the futures premium to cash, is
enough to keep folks cautious to mega bearish.
Perhaps itís worth
remembering that 2017 has differed distinctly from the prior two years
in the most important way. The fed kill. Since the last week of April,
the non-holiday fed kill has averaged 508k. A kill of +500k may persist
through much of October. The entire supply chain has domestically and internationally
absorbed the largest and most consistent fed beef slaughter in a 5 months
period since 2012. And itís accomplished that at prices higher than the
major cutout low posted in November 2016.
Itís true that some
labor constraints have at times, limited production this year, but the
reality is that packing industry has increased slaughter 5.8% over 2016
YTD, posting the highest per head federally inspected slaughter since 2013.
Last fall some plants did raise wages, add staff and increase line speeds
to accommodate the growing supply. Next, retailers heavily featured beef
and consumers snapped up the savings. The industry is coming into the fall
of 2017 having already demonstrated its ability to deal effectively with
large beef and competing meat supplies. For the remainder of 2017 and into
early 2018, the upside may likely be limited- but perhaps the downside
is as well.