Cattle Futures Push Higher

Live cattle futures Tuesday closed higher, with the nearby Apr delivery month challenging the contract high of $120.32 per cwt set on Jan. 19 with a peak of $120.07.

However, it was the Jun contract that saw the most strength, rising $1.25 per cwt on the day to end at $111.05 and setting its fourth straight new contract high of $111.20.

 

TECHNICALS LOOK BULLISH

 

Many of the technical indicators for this market appear bullish, trade sources said.  Thursday’s gap higher on daily charts in the most-active Jun contract shows some near-term strength, especially since it was preceded by a very strong reversal and close near the high on Wednesday.

The gap was followed by Thursday’s sharply higher market and close reasonably near the top while setting a new contract high, trade sources said.  Friday’s and Monday’s action could be seen as days of indecision since the open and close were very near each other or identical, but Tuesday’s breakout to another new contract high with a close near the top indicates further bullish sentiment.

In addition, prices remain above major moving averages.  The 10-day moving average for the Jun contract crosses at $108.36 per cwt; the 20-day line crosses at $107.40; the 50-day average crosses at $106.75, and the 100-day line is at $103.95.

 

CASH MARKET CONCERNS

 

However, there are longer-term concerns about the negative carry in the futures market and the futures market’s discount to cash strength.

Cattle last week traded $3 to $5 per cwt higher than the previous week at mostly $127 to $130, higher even than Tuesday’s settlement in the nearby Apr futures contract of $119.90 after four days of higher closes since the last cash trade last week.

Additionally, the Jun and Aug contracts had successively lower settlements, and the Oct and Dec contracts made only a weak attempt at staging a market carry, making it difficult to hedge cattle going on feed.

This lack of a carry in the futures market has led to feedlot managers selling cattle to packers for slaughter as soon as possible.  The futures market, while not intended as a price-discovery tool, is telling cattle feeders that their cattle will be worth less going forward than they are now.

That may be a large part of why cash feeder cattle prices in the Southern Plains are holding below last year and the 2011-2015 average, sources said.  Cattle feeders are cautious about what they pay for the calves they put on feed in light of what the market is telling them those cattle will be worth when it comes time to send them to slaughter.

 

CASH CATTLE QUIET

 

Cash cattle markets were quiet with asking prices at $130 to $134 per cwt on a live basis and $212 to $214 dressed.

Last week, cattle traded in the Plains at $125 to $131.50 per cwt, mostly $127 to $130, up $3 to $5 from the previous week.  Dressed-basis trading was mostly at $210, up $8 to $10.

Average fed cattle exchange auction prices last Wednesday were $4.63 per cwt higher at $128.31, versus $123.68 a week earlier.

The USDA’s choice cutout Tuesday was up $1.17 per cwt at $224.93, while select was up $1.44 at $215.41.  The choice/select spread narrowed to $9.52 from $9.79 with 98 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $129.95 per cwt, up $0.25.  This compares with Tuesday’s Mar settlement of $132.00, up $0.52.