Disappointing cash cattle markets this week, ample supplies of market-ready cattle along with abundant stocks of competing meats pressured live cattle futures this week to three consecutive contract lows in the most-active Dec contract, and the carnage may not be done.
Now, the market must deal with bearish momentum, which could add a fourth day of new lows before the weekend.
The only thing that might give the market pause is a Reuters story that as many as five million chickens so far were killed by Hurricane Mathew in North Carolina. The industry kills around 197 million birds a week, so five million deads may not be a great pain, except for the fact that US chicken production is a well-oiled machine, and polluted chicken houses may not be approved for production for months.
CATTLE PRICES FADING
Cash cattle prices continue to follow the 2015 trend lower, virtually ignoring the 2010-2014 average, which shows a seasonal tendency for higher prices in the last half of the year.
The graph does not show this week’s USDA five-area cash trade of $98.08 per cwt, down $3.83 from last week’s $101.91.
It may be significant that this week’s cash price broke below the round number of $100 per cwt. Traders often attach significance to round numbers, even if it is only psychological, market sources said.
A week’s trade below the $100 mark may be enough of a weight that further price drops next week are possible, if not inevitable, they said.
THE HURRICANE EFFECT
Market sources said futures traders were concerned about slow demand in Southeastern states in the wake of Hurricane Mathew. Damage from wind and flooding was extensive, and infrastructure was damaged.
Restaurants and retail grocers may not have inventory on hand, and some may have to be cleaned up, repaired and inspected before they can reopen.
In addition, consumers themselves may be engaged in cleanup efforts and not in the mood or financial position to spend much on meat.
FUTURES OUTLOOK NOT SUPPORTIVE
The futures market is not supportive to a quick rally, at least one that will last, the analysts said. The Oct contract settled Thursday at $94.45 per cwt, down $2.30, and the Dec contract ended at $96.17, almost $2 below this week’s cash trade.
The Feb and Apr delivery months settled Thursday higher than the Dec contract but still were below the week’s cash trade.
Not much support there, analysts said. Nor was there a good reason in the charts for a rally. Daily bar charts of the Dec contract show no sign of a rally in spite of the three days of new lows.
What may offer some temporary support is the fact that it is Friday after some significant losses. A little short profit taking ahead of the weekend would not be unheard of.
CASH CATTLE MARKETS TRADE STEADY TO LOWER
Cash cattle markets Thursday traded steady to lower, with grudging action at $98 per cwt on a live basis, steady with Wednesday, and at $151 to $152 dressed, down from $154 to $156 Wednesday. Cattle traded last week at mostly $102 live and $158 to $160 dressed.
The USDA’s choice cutout Thursday was $0.10 per cwt higher at $181.60, while select was up $0.43 at $172.61. The choice/select spread narrowed to $8.99 from $9.32 with 96 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $125.39 per cwt, down $1.54. This compares with the Oct settlement Thursday of $119.45, down $2.55.