Cash Fed Cattle Prices Surge; Futures Reluctantly Follow

Sorry, but I’m about out of snide remarks. lol jtl

From The Beef  by Cassie Fish, CassandraFish.com

Yesterday’s action in both cash and futures was almost a dead ringer for much of 2014- a futures market steeped in worry and a bullish cash cattle market. Cash prices yesterday traded as high as $170 and $275 dressed while Feb LC hovers around $166, near its 50-day moving average then slips lower. Some traders may say futures are ignoring good cash news, which used to be a reliable bearish sign, as long as you don’t count 2014.

In fact, cash isn’t done trading this week as western Nebraska is bid deeply at $170 with no takers. So what was behind the big cash rally yesterday -a Tuesday no less- and were packers able to procure enough numbers to back away?

The following charts of USDA data, which includes last week’s activity are the only public line of sight into packer inventories of negotiated and committed cattle. Six short weeks ago, packers pulled out all the stops to secure inventory for what was viewed as one of the tightest fed cattle supply periods in modern times. Packers bought cattle with time, basis traded big strings of cattle into February and weighed up cattle and put them back on feed.

As the weeks went by, packers stayed out of the negotiated market and burned through relatively high priced inventory. When the feeder cattle fiasco tanked the entire cattle market for a couple of weeks and cash traded briefly as cheap as $156-158, no one loaded up on cheap inventory. Fast forward to the first full week after January and the 6 consecutive weeks of tiny trade volumes becomes unsustainable. Throw in some uber cold weather and a full out scramble to regain a foothold of fed cattle inventory ensued.

2015-01-07_Chart1

2015-01-07_Chart2

It’s too early to get the totals for this week’s trade volume but early reports are packers are far from full. Boxed beef values are advancing but not at the pace of the live, so margins are slipping, though it’s way too early to draw conclusions about where margins end up for the month.

It’s the packers turn to pass on higher costs by raising boxed beef offering prices to end users. After the big break in December many end users may have thought the bull was over and will be reluctant to pay up. But beef production continues to lag year ago levels and that will continue in January, when the industry will slaughter 50,000 to 100,000 fewer cattle than 2014 on the heels of 2 holiday weeks that fell 113,000 head short of a year ago. Even with cattle weights 20 pounds over a year ago, that is a significant supply short fall.

The Beef is published by Consolidated Beef Producers…for more info click here.
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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