CME cattle futures have traded both sides of steady this morning, in extremely choppy action, fading from a strong early rally then slipping to make new lows for the move in Feb and Apr LC. Disappointing market action for those still harboring bullish expectations as the market so far, is refusing to make an assault on overhanging moving averages or even yesterday’s high. Cattle futures continue to ignore bullish cash news—boxed beef prices are the highest since early August on good volume, domestic and export.
It’s a foregone conclusion cash fed cattle prices will trade lower this week, in the $167-168 area. And indeed a very few cattle traded yesterday even lower than that level, though not considered representative of the market. There were also some tops bids around yesterday $1-$2 over (and trades at the high end were made) as packers continue to show interest in securing more inventory, even though last week’s negotiated trade was the highest since October and slightly above last year for the same week.
Slaughter levels this week are estimated between 535k and 555k compared to last week’s 538k and a year ago of 573k though some of the short fall is cow slaughter continuing well below year ago levels. Kills should creep up as packer margins continue to improve.
Today’s Fundamentals No Help
But cattle fundamentals are not a factor today as the futures are on a mission to flush out more longs. Yesterday’s open interest showed a drop in over 10,000 from Feb LC and less than that added to Apr for a net loss 3,082 contracts overall on big volume, 92,519 contracts. There are 2 more days of the Goldman roll. As oil prices sink further, dragging down commodity indices, some believe spillover selling plagues many commodities including cattle.
Market watchers always look for reasons to explain the twists and turns of futures action. Some point to cheap and plentiful pork and poultry, or the ban by China of U.S. egg and poultry because of a bird flu virus in Oregon, which could increase poultry supplies in the U.S. if it persists. Not a problem today but certainly one at some point is the argument here.
Bottom-line, cattle futures market action is bearish today. Futures are not oversold. Futures are ignoring positive cash news, an extremely wide basis, seasonal tendencies and the bear spreads are working. And longs are playing defense or stepping aside until the smoke clears while bears, emboldened by today’s failure press on.
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