Long Liquidation, Weaker Cash Keep Lid On Live Cattle Futures

Live cattle futures remain under pressure in overnight trading as long liquidation continues amid weaker cash prices in spite of continued strength in beef markets.\r\n   Cash cattle in the Plains this week traded in a range from mostly $148 to $150 per cwt on a live basis and at $237 to $240 dressed in Nebraska, generally $2 lower than last week.  \r\n   Cattle futures worked lower on Thursday after peaking and then falling back sharply on Wednesday, forming a “key reversal” on western charts and a “bearish engulfing pattern” on candlestick charts.  In both cases, a new high for the move (in this case, a contract high) is followed by a decline that closes below the previous day’s low.\r\n   A gap on daily charts from last week may be the target for technical traders, although a $2 decline in cash markets also may give speculative traders with profitable long positions pause and a reason to continue liquidating ahead of the weekend.\r\n   The USDA reported its choice cutout value Thursday at $235.58 per cwt, up $1.07.  The select cutout also rose $1.07 to $233.00.  The choice/select spread held at $2.58, but there were only 78 loads of fabricated product sold into the spot market, an indication of sluggish buying in the spot market.  \r\n   The fact that boxed-beef prices can continue to climb in spite of lackluster spot sales suggests that packer product inventories are crimped.  Slower slaughter rates in February because of harsh weather conditions and a declining US cattle herd may explain some of this.  \r\n   This week’s slaughter rate through Thursday was estimated by the USDA at 442,000 head, 1.34% lower than the same period a week ago and 7.34% below a year earlier.  \r\n   The USDA estimated beef production last week at 455.5 million pounds, 5.12% more than the 433.3 million the previous week and 2.06% more than the 446.3 million pounds of a year earlier.  However, and perhaps more importantly, year-to-date beef production, at 3.890 billion pounds is down 6.9% from a year earlier.\r\n   And it appears that high beef prices are taking a toll on exports.  The USDA reported weekly US beef export sales at 11,100 tonnes, down 5% from the previous week, with shipments at 11,457 tonnes.  Japan, Hong Kong, South Korea, Mexico and Taiwan were the major buyers.\r\n   Futures traders have taken on a more tentative tone this week, unable to convince themselves that the rally in cattle and beef prices can continue, ADMIS said.  The lower cash prices, thin spot-market beef sales and softer export markets may be affecting their buying interest, even though April futures still holds a discount to the cash market.\r\n   Feeder cattle are following the lead of the live cattle market, finishing lower on Thursday amid its own technical selling, which was reinforced by gains in corn futures.  \r\n   The CME Feeder Cattle Index for the seven days ended Wednesday was $172.26, up $0.05 while the March futures contract closed Thursday at $171.40, down $0.82.\r\n   Corn continues higher in overnight action after being given a shot Thursday by stronger-than-expected export sales of not only corn but of soybeans and wheat as well, in USDA’s weekly report.  All were above expectations and contributed to fears of shortages in the soybean market.\r\n   Heavy technical buying and short covering also were credited with supporting corn futures prices, as was investment money flowing back into commodities amid thoughts of a weather scare at some point in the year.\r\n   There also were thoughts that some political hiccup could add strength to commodity markets in light of recent developments in Ukraine.  \r\n   The Crimea parliament voted today to join the Russian Federation, seceding from Ukraine.  The move must be approved by Crimean citizens in a referendum now set for March 16, but the region is culturally tied to Russia anyway, with a common language and heritage.  Additionally, the city of Sevastopol’s lawmakers also voted to hold their own referendum to join Russia.\r\n   However, Ukraine takes umbrage with that, saying both referendums violate Ukraine’s constitution and add that the matter must be voted on by all of Ukraine.\r\n   Russia is siding with the votes in Crimea.  Besides the cultural ties, Russia has its only warm-water naval base at Sevastopol.\r\n