Many Wonder About Cattle Top

Apr live cattle futures have closed higher for 10 straight trading days, leaving many investors wondering where it will stop.

The nearby futures contract still isn’t keeping pace with the cash market, which traded this week in a range of mostly $130 to $133 per cwt on a live basis – new highs for the year.  With a close of $127.92 on Thursday, the futures market has a ways to go before catching up with cash.

Packer buying interest has been flagged as the guiding force in the surge, but without strong beef demand, packers wouldn’t be interested.  Hedge lifting also has been noted as hedged feeders sell cattle higher and then cover their short hedges at a lower price.

Market sources have said a narrowing retail price spread between beef and its main competing meats, pork and chicken makes beef a likely candidate for retail meat features over the next couple of months.  These buyers would have been in the market booking their needs over the last two months.

Technically, live cattle futures still look like there is life left, but with a weekend and a USDA monthly Cattle on Feed report coming today, some long profit taking could be expected, trade sources said.  However, a mild setback may not provide the chart signals necessary to foment a longer period of liquidation.

That’s especially true if the USDA report comes close to trader estimates.  Reuters reported that feedlot placements were expected to be up 6.5% from a year ago with marketings up 9.4%, leaving an on-feed number that is down 0.3%.

 

PACKER MARGINS HARMED

 

However, the weekly average choice boxed beef wholesale value has actually declined over the last three weeks, suggesting that retail buyers may be done booking beef for a time.  At this point in April, they likely have their first-weekend-in-May retail features covered, and they will sit back and see how the product sells before committing to any more purchases.

With rising cash and futures markets and declining beef prices, packer margins are coming down, yet with the Sterling Profit Tracker showing an estimated $73.53 positive margin, buyers keep pushing cattle prices higher.  The only reason to do this is to fill orders, either domestic or export.

 

EXPORT SALES UP

 

Weekly beef export sales were 19,700 tonnes, up 26% from the previous week and up 30% from the four-week average, according to the USDA’s Foreign Agricultural Service.  Actual exports of 13,700 tonnes were down 2% from the previous week but up 1% from the prior four-week average.

Primary destinations were Japan, South Korea, Hong Kong, Mexico and Canada.

 

CASH CATTLE QUIET

 

No cash cattle trade was reported Thursday.  Most traders feel the week’s action is done.

Cattle traded on the livestock exchange Wednesday at an average of $128.60 per cwt, up $2.60 from last week, but fewer than 1,000 passed under the gavel.

Subsequently, cash cattle traded in a range from $129 to $133 per cwt on a live basis, mostly $130 to $133, up $4 to $5, and at $210 on a dressed basis, steady to up $2.

The USDA’s choice cutout Thursday was up $0.55 per cwt at $215.72, while select was up $1.57 at $203.57.  The choice/select spread narrowed to $12.15 from $13.17 with 86 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $137.65 per cwt, up $1.01.  This compares with the Apr settlement Thursday of $137.90, down $0.77.