Cattle Trade Watching For Market Bottom

9-23-16 – Traders who jumped into the fed cattle market a month ago based on expectations of a bottom now are feeling the pain of that decision, according to Nevil Speer, vice president of US operations for AgriClear Inc.

Last month, the market was poised for a breakout to new price levels or to test new lows.  August markets brought the latter.

Fed cattle trade ended July with mostly sideways action for the month in line with the monthly average of $117 per cwt on a live basis, although this was $6 off from June and $12 lower than May, Speer said.  And given that $117 trade, there was some hope that mid-July’s $114-115 was the seasonal low.

 

TROUBLE WITH PRICES

 

That sentiment found some confirmation during the first half of August with trade hovering around $118-119.  But then the market ran into trouble.  First, fed cattle gave up another couple of dollars and retested July’s $114-115 low, and upon that retest, the market needed to hold.

The last week of August turned especially ugly.  Cattle feeders not only sold cattle early in the week, but did so around $110.  Fed prices haven’t traded at that level since 2011, he said.

Simultaneously, futures contracts also got beat up.  Oct gave up $5 going into Labor Day.  But more importantly, the contract finished the week by establishing a new low at $101.38 and barely managed to close above that low at $101.60.  Worse, follow-through just piled on – Oct retreated even further, including an intra-day break below $100.

Penetration of key support levels now leaves the contract vulnerable technically.  Moreover, Oct’s deep discount to cash suggested that cash prices could go lower in September, depending on beef demand and slaughter rates.

So, the market now heads into the fall needing to establish some semblance of bullish action.  The only catalyst for that to occur will be pull from the wholesale market, Speer said.

It’s been an especially hot summer, and beef sales have struggled.  The choice cutout has largely traded around $200 since mid-July.  However, pre-Labor Day sales were disappointing.  Cooler weather and fall featuring could help provide a lift to boxed beef prices.

However, there is the issue of fed cattle supplies.  Cattle feeders were fairly aggressive in purchasing replacements in late spring and through the summer, he said.  Placements in March, April, May, June and July ran ahead of last year by 5%, 7%, 10%, 3% and 2%, respectively.  They represent an additional 438,000 head versus 2015 that began hitting the pipeline in August and will need to be marketed in the coming months.

But the temptation is to fight the market and get bogged down with inventory – especially when the closeouts are persistently negative.

 

PROTEIN SUPPLIES AMPLE

 

Meanwhile, protein supplies remain ample, Speer said.  Pork and poultry are bringing bigger production numbers, too.

The Livestock Marketing Information Center said, “For the first six months of 2016, US beef production was 5.2% above 2015’s.  At 12.1 billion pounds, that was the largest tonnage for January-June since 2013.”

The additional total, versus 2015, is 1.273 billion pounds; 600.2, 105.7, and 567.3 million pounds for beef, pork and poultry, respectively, he said. That’s roughly equivalent to 4 pounds of additional protein per capita in the US

 

 

CASH CATTLE MARKETS MOSTLY QUIET

 

Limited cash trade was reported in Iowa at $168 per cwt on a dressed basis.  Otherwise, cattle markets Thursday were quiet with scattered bids of $108 on a live basis being pulled and asking prices up $2 to $5 at $112 to $115.

The USDA’s choice cutout Thursday was $0.20 per cwt higher at $187.37, while select was off $0.16 at $179.62.  The choice/select spread widened to $7.75 from $7.39 with 95 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $136.11 per cwt, up $1.53.  This compares with the Sep settlement Thursday of $137.00, up $0.65.