Cash Cattle Drop Confirms Futures Bearishness

This week’s $5.00-per-cwt drop in cash cattle markets confirmed the bearish ideas of futures traders and gave the market a decidedly counter-seasonal bearish tone.

Cattle and beef prices will remain on the defensive for as long as this bearish psychology continues.  Deciphering when that will happen, however, is the hard part of the forecast.

Live cattle futures posted a strong recovery Thursday as traders covered short positions.  Is it possible that futures traders already are turning more bullish?

The USDA’s weekly choice beef cutout value has a seasonal tendency to move higher in August and then run sideways into the end of the year.  Last year, the weekly price dropped during the summer and then began a slow, uneven rise into the end of the year.

The USDA’s boxed-beef cutout Thursday declined yet again with choice down $0.14 per cwt to $256.74 and select down $0.98 to $248.57.  Over the latest week of trading, choice has fallen $5.67, or 2.16%, while select has declined $6.69, or 2.62%.

Thursday, 107 loads of fabricated product were sold into the spot market, and the choice/select spread widened to $8.17.

This year, the cutout value rose in June and July and appears to be peaking in the middle of August – just when prices caught a bid last year amid tightening supplies and good demand.

Many market analysts and traders assume the market will fade as it accounts for the normal summer weakness, even if it is a little late.  But the seasonals are there for a reason, and fighting the seasonals for very long often is a dangerous gambit.

It’s apparent that current fed cattle numbers are rising as slaughter rates increase weekly.  It’s also apparent that slaughter weights are up as feedlots kept cattle on feed longer to add more weight.

Those rising numbers and slaughter weights are forcing the counter-seasonal move, which will continue until they are used up or until the beef market decides it wants all the extra beef as it prepares for Labor Day and end-of-year holidays.




This week’s $5 drop in live cash cattle prices will take the USDA’s five-market average down to chart support near $155 per cwt.  The market stabilized at this point in July after dipping from what was then a record high of $157.61.

At the time, most assumed the market was headed lower as extra first-quarter feedlot placements came to market.  Even then, the decline was late and culminated a counter-seasonal rise in June.

If the five-market average cattle price drops through $155 support, (and current momentum seems to indicate they might) the next level of chart support would be the late-March top of $152.21.  This would be backed up by a long consolidation zone running down to about $145.




While live cattle futures bounced Thursday, feeder cattle were mixed, showing traders were more undecided about market direction.  Short covering and spillover support from live cattle apparently limited losses and even turned Aug higher.

However, the Sep contract finished with a bearish bias technically and may drag on futures in coming days.

Feeder cattle supplies remain tight, evidenced by a reduced slaughter rate of veal calves.  It appears that many of these calves are finding their way into conventional feedlots rather than into the veal market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $222.78, down $0.19.  This compares with the Aug settlement Thursday of $215.12, up $0.75.  It’s possible that steady to firm cash markets may drag futures higher to close this gap.