Jun and Aug live cattle futures delivery contracts are weak and appear to be headed lower, even though there are indications the market should be finding at least a temporary floor soon.
At the moment, it looks like beef packers would be interested in buying Jun live cattle futures since the Jun delivery month is $9 to $11 per cwt cheaper than where cattle traded last week. However, if they are buying, it doesn’t appear to be countering the selling interest being seen in the futures market.
FUNDAMENTALS WEAK
One old-time trader used to say to “view fundamentals only in very broad strokes.” This means that technical indicators and market perceptions often make more sense than actual fundamentals when dealing with futures prices, at least in the near term.
In the long run, fundamentals will win out, but getting to that point can be frustrating. To quote Forbes Columnist Gary Shilling in February 1993, “Markets can remain irrational a lot longer than you and I can remain solvent.”
Things like seasonal moves are part of the “very broad strokes” that trader would look at, but many other nuances that traders try to parse out of the markets are less important.
Currently, the seasonal trend for cash fed-cattle prices is down, according to data from the USDA’s Agricultural Marketing Service and compiled by the Livestock Marketing Information Center. The bottom can come anytime from late June to late September. The 2013-17 average is the last week of September, but last year, it came the last week of June.
Higher corn prices could be playing a part in the current weakness in live cattle futures, a market analyst said. Rising feed costs certainly are pressuring feeder cattle, and the weakness could be spilling over into the live cattle market.
TECHNICALS POINTING LOWER
However, large commodity investment funds have been selling cattle futures actively since hitting a three-year high net long position in late April. They have been liquidating long cattle positions ever since.
Also, the Jun contract fell below major moving average support points, fueling further liquidation pressure from the technical traders. When this much money is involved in a market move, much of what might make sense goes out the window.
The initial selling interest came when the weather turned more spring-like, and traders feared that cattle had been backed up in the feedlots. Since then, the selling has fed upon itself as long speculators got out to protect any profits or to limit losses.
At first, it looked like cattle may be backed up in the feedlots, but it’s beginning to look like the feedlots are current in their marketings. Federally inspected steer slaughter weights are holding very close to last year and the previous five-year average.
A fundamental pressure point could be unseasonably weak wholesale beef prices as unusually wet, cool weather stymies grilling activities. Some traders could be fearing rising cold-storage supplies.
CATTLE, BEEF RECAP
Cash cattle trading was reported last week in the Plains at $115 to $117 per cwt on a live basis, steady to up $1 from the previous week. Dressed-basis trading was reported at $186 per cwt, steady to up $1.
The USDA choice cutout Monday was down $0.01 per cwt at $223.20, while select was down $0.82 at $206.87. The choice/select spread widened to $16.33 from $15.52 with 84 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Friday was $133.05 per cwt, down $0.58 from the previous day. This compares with Monday’s Aug contract settlement of $133.50, up $0.37.