I was reading somewhere earlier this morning how we are experiencing a downturn in commodities prices in general which usually is an early indicator of a general economic downturn. I’ll see if I can find where I read it and put it up. Hang in there. — jtl, 419
Open interest dropped under 300,000 contracts for the first time in well over a year yesterday on turnaround Tuesday’s “dead cat bounce” and the down trend resumed in early trade this morning as more traders pull out and go home. True, LC futures held and continue to hold the 100- day moving average and the long term broad support of $160, but the velocity of today’s early break tells the story- this market may not quite be done going down.
Good Old Hindsight
The gift of hindsight illustrates clearly that the record highs reached in November were unsustainable and a correction was highly probable in December. But in classic fashion, the way in which the market has fallen apart, the speed, timing and dollars lost has done nothing but increase anxiety for bulls and bring lurking bears out of the woodwork in droves.
Still Plenty of Bearish News
History also tells us that during this past year during major corrections the market doesn’t make picking the bottom easy. Testing areas of support on multiple occasions is commonplace as bulls give up and bears press all the while accompanied by lots of bearish fundamental news. Few would argue the break in cash fed cattle and boxed beef prices is finished. To complete today’s picture, multitudes of stories about monster cattle weighing 1,700 or more abound complete with whispers some are waiting until January to sell big cattle to avoid 2014 taxes.
What Will It Take to Bottom
The likelihood of a tradable bottom will come when the cash market confirms what futures doggedly portend and trade lower again testing the $163-164 area and possibly the $160-161 level. A basis change as cash breaks and futures anticipate a low may well be in store later this month.
Packers on an Important Mission
Packers will be able to keep the pressure on the few cattle feeders left in the negotiated market this week and next week, as packers attempt to take more money off of the live quicker than will be coming off the cutout.
The packer also has a sharp eye on the calendar as the degree of his success between now and Christmas is the set up for the economics of January. Packers have purchased dramatically few cattle in the negotiated market 7 of the last 8 weeks and this week looks like it will be another. Post-Christmas, the task of scheduling slaughter that will be significantly larger than the 2 holiday week kills is an annual event, but this year it poses perhaps a bigger challenge than other years.
Besides winter weather, January demand, specifically for grinding materials will be the key to the degree of upside potential for futures and live prices. Many are wondering if last year’s screaming rally in the chuck and round repeats or have enormous beef imports from drought-stricken Australia plugged that hole. That is certainly a, if not the primary question when attempting to quantify where we go from here.
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Disclaimer: The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.
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