One of the only legs left for the cattle market to stand on appears to be softening. The other one may not have the strength to provide the necessary lift to reverse what appears to be a trend.
First, it was the futures market that gave the first hints that cattle prices lacked the backbone to keep moving higher. Deferred contracts have run below nearby contracts for three months or more.
That told traders that the market lacked the confidence that larger fed cattle supplies wouldn’t overrun the market at some point. The market wanted the cattle “now.”
However, strong beef demand kept the market moving higher, in spite of the lack of confidence shown by futures traders. Wholesale beef prices reached unprecedented levels, led by strong demand for choice product. Even export customers got in on the act by demanding more choice muscle cuts than before. They even paid up when the US dollar strengthened.
Futures traders couldn’t bring themselves to believe that domestic, and especially foreign, demand for choice beef would continue, so they kept discounting deferred contracts, even as prices for all months were pulled higher.
Futures investors finally got their way when the nearby Jun contract topped out at $134.55 per cwt on May 4. Since then, the contract has continued to sag, even shrugging off a May 12 rally attempt.
SUSCEPTIBLE TO LONG LIQUIDATION
The Commodity Futures Trading Commission last week reported that large investment firms were liquidating their large net long live cattle futures positions during the week ended Tuesday. Market weakness this week appears to indicate further liquidation has taken place since then.
More long liquidation could come as futures prices sag past pre-arranged chart selling points.
One could say that cash markets are holding up the futures markets since for the past few weeks, cash prices have been well above the Jun contract. This week was no exception with the bulk of the trade so far at $133 to $134 per cwt on a live basis versus the Jun contract’s close at $122.92.
But cash prices have softened over the last three weeks, dropping from the latest high of most $145 per cwt, appearing to be lead the futures market lower.
NOW BEEF MAY BE SOFTENING
The USDA’s daily boxed beef cutout value has declined the last two days and could be the last leg of market support. Traders have known that strong beef demand was pushing meat and cattle prices higher. It has been for at least six months.
The cutout has declined the last two days, so this week’s average looks like it will be above last week, but trend may have turned lower. USDA data shows that such a turn is about due seasonally.
CASH CATTLE QUIET
After cattle traded on the livestock exchange Wednesday at an average of $134.81 per cwt on a live basis, down $3.59 from $138.40 a week earlier, cash cattle began to trade at $133.75 to $135.75 live and $215.00 dressed. However, much more trade occurred on Thursday at $133 to $134 live, down $4 to $5 from mostly $138 last week.
The USDA’s choice cutout Thursday was down $0.96 per cwt at $247.21, while select was off $0.27 at $221.66. The choice/select spread narrowed to $25.55 from $26.24 with 83 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $142.05 per cwt, down $0.07. This compares with Thursday’s May settlement at $142.27, up $0.30.