From CassandraFish.comBy Cassie Fish,
CME cattle futures may be posting triple digit gains this morning after last week’s thrashing, but it will take more than a few hours of trading higher before traders are convinced a tradable low has been made.
Explanations for last week’s melt down and sharp divergence from cash prices all seem to fall short of making complete sense. Fund rebalancing was being blamed, but the open interest pattern in live cattle futures shows little change after 2 days of activity, with total OI as of Friday 274,109 contracts, about 9k off of the low made in December and down only 678 contracts since last Wednesday. Bearish technical action definitely stimulated selling by longs and new shorts and with volumes big, it appears lots of change of ownership took place.
It is the velocity of the break last week’s break that knocked the breath out many folks and caution fills the air today. The number of bears seems to increase minute by minute while the confidence of bulls diminishes as quickly. For lots of traders, the January break coming so quickly on the heels of the December monster decline and in the face of bullish cash news surely means the bull market has seen its best days.
What About the Cash Market?
This week will benefit the beef packer and if you study history, that’s not unusual. Margins typically improve each year about this time and this week will be no exception. Boxed beef movement last week picked up dramatically as cutout prices rose almost $9 with gains made all over the carcass except the rib. Another $5 upside is expected this week.
Cash cattle prices are already expected to trade as much as $2 lower although packer interest has already been noted by cattle feeders this morning. Better margins should translate into increased slaughter levels back above 550k and provide some underlying stability to cash prices which should in turn, undergird futures, at least to a degree.
January strength in boxed prices typically lasts for the first 3 to sometimes 4 weeks of the New Year and last year carried for 4-5 weeks on grinding demand.
January Beef Sales Off to a Brisk Start
As the following charts illustrate, spot sales last week were adequate, but all other categories of beef sold, including exports, resulted in total sales well above last year. Impressive in the face of all the doom and gloom and well worth watching closely the next few weeks for it was the beef market that was the key to last January’s market performance.
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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