Managed Money Continues Cattle Liquidation

Managed money, a proxy for large speculators, liquidated live cattle contracts aggressively during the latest reporting week as producers increased their net short positions, resulting in a price top in Oct futures.

During the week ended Tuesday, managed money reduced its net long positions in live cattle to 102,387 contracts, the Commodity Futures Trading Commission reported.  This was the lowest net long position for these traders since the week ended Jan. 7 when it was 79,102.

Producers sold during the latest reporting week and by Tuesday had 158,955 short positions, the CFTC said.

The trend in fund liquidation and producer selling apparently continued during the last half of last week since prices attempted to forge a new contract high in Oct only to be turned back twice with sharp losses Thursday and Friday.

At the same time, total live cattle open interest fell 2.49% to 331,426 on Friday from 339,876 on Monday, further indication that fund liquidation and producer shorting continued through the week.

The Oct contract now is below support at the four-day moving average.

Last week’s cash cattle trade, at mostly $162 to $163 per cwt on a live basis was lower than many expected and could signal that the summer’s top cash price was set the previous week at $164 to $166.  Many have been expecting a summer top for more than a month, and many of these traders expect the summer dip to be delayed into August.

 

DRESSED WEIGHTS CLIMBING

 

First-quarter placements pointed to a surge of slaughter-ready cattle about July, but that didn’t materialize.  So what happened?

It now appears they were there all along, munching more feed and packing on a few more pounds.  With feeder cattle prices hitting record highs and corn prices continuing to decline, it made sense for feeders to market their cattle at heavier weights, especially with per-pound fed cattle prices also rising.

USDA data show slaughter weights rising during the latest reporting week, following the seasonal trend but diverging above last year’s record pace.  The angle of the ascent indicates further gains are in store, which will produce more beef per head and wear away at fed cattle prices.

 

CORN LIQUIDATION REMAINS A FEATURE

 

In addition to liquidating live cattle positions in the latest week, managed money firms were liquidating corn positions, the CFTC said.  During the week ended Tuesday, managed money cut their net long positions in corn to 87,631 contracts from 101,518 the previous week, a drop of 13.78%.

That puts the funds’ net long positions at their lowest point since the week ended Feb. 18 when it was 57,823 contracts.

During the same week, producers covered short positions and ended with a total net short position of 217,073 contracts, down 4.0% from the previous week and the lowest net short position since the week ending Feb. 11 when they were net short 195,681.

Since then, total corn open interest continued to decline to 1.376 million contracts from 1.383 million on Tuesday while the Dec contract fell to a contract low of $3.51 ½ a bushel.

 

BEEF PRICES KEEP PACKER MARGINS STRONG

 

Some market analysts calculate that packing plant margins are up to $66.00 a head as cattle prices subsided last week and beef prices remain strong for the week.  Feeders likely will try to capitalize on this if their own closeout weights and showlists don’t get in the way.

But the USDA’s choice cutout Friday was down $0.53 per cwt to $263.13, but the select cutout fell $2.48 to $258.12.  The choice/select spread widened to $5.01, turning right on schedule seasonally.