Steady Cash Supports Cattle Futures

Cash cattle trading at better-than-expected levels this week helped to underpin the futures market in spite of weakening hog markets and limited slaughter.

Live cattle bulls benefitted as the week’s cash cattle trading likely was completed Thursday at $163 to $164 per cwt on a live basis and $258 to $260 on a dressed basis.  The cash market showed more resilience than many had expected and helped to propel futures to triple-digit gains and close near the high of the day.

Packers are thought to be losing money on each animal slaughtered, but are being forced to pay up for slaughter inventory because of tight supplies, which only look to get tighter into the first quarter of 2015 at least.  Many do not expect fed cattle supplies to loosen up until 2016 at the earliest.

Any cattle remaining on feedlot showlists carry a price tag of $165 or more live and $260 or higher dressed.  If they carry over into next week, they could be marked up.

Technical traders now may see live cattle futures resuming a longer-term bullish trend and step in to cover short positions or to take on fresh longs.

 

FEEDER CATTLE JUMP LIMIT, SUPPORT LIVE CATTLE

 

Live cattle also got a boost Thursday from a limit-up, or near-limit-up move in feeder cattle, reversing Wednesday’s limit-down trade.  The CME Feeder Cattle Index of cash markets was holding well above the Oct futures contract, held there by continued tight supplies.

Many auction houses report much lower volumes of feeder cattle moving through their rings, and buyers are forced to keep prices high and moving higher.  Many of the cattle are too high to hedge a profit into the futures market.  Buyers are hoping the market will come to them.

The CME Feeder Cattle Index for the seven days ended Wednesday was $243.81 per cwt, down $0.23 from Tuesday, but still $3.61 above the Oct feeder cattle futures contract settlement Thursday.

Many also saw Wednesday’s limit-down session as a buying opportunity and stepped in to invest, seeing continued tight supplies ahead.

 

HOGS DROP LIMIT, COULD PRESSURE CATTLE

 

However, lean hogs may stifle the exuberance in live cattle markets.  Hog futures were limit down Thursday as supplies increase seasonally, and growers are getting ahead of the Porcine Epidemic Diarrhea virus.

Pork production is gaining, and rallies in cattle and the stock markets didn’t help overcome this.  Nor did the fact that technical studies say the market has become oversold.

Closes below technical chart points only lead traders to conclude that prices are headed lower.

Lower hog prices will relieve packer margin pressure and allow for lower wholesale pork prices, which in turn will pressure beef and cattle prices.

While cattle appear to be headed higher, the road may be bumpy.

 

BEEF LOSES MOMENTUM

 

Further exacerbating a negative margin problem for packers is a limp boxed-beef market.  The USDA’s choice beef cutout price Thursday was $248.92 per cwt, down $1.57 from Wednesday while the select cutout was down $0.52 at $234.92.

For the choice product, that is a reversal of this week’s trend higher, but the select product began to lose steam on Tuesday.  For the week, choice is up $1.86 while select has only $0.07 of the week’s gains left.

The choice/select spread narrowed to $14.00, and there were 113 loads of fabricated product sold into the spot market.