By Cassie Fish, CassandraFish.com
It’s only the beginning of the third week of 2015 but the downtrend in CME cattle futures that resumed on January 8 is picking up an ugly head of steam. Within 30 minutes of this morning’s opening new lows for the move have been made in every live cattle futures contract pushing the break to over $14 in Feb LC.
Open interest continues to decline too as more and more traders move to the sidelines pressured by margin calls and a bearish technical outlook. LC OI dropped another 2.1k Friday to a new low for the move of 259,238 contracts.
Boxes Break; Cash Fed Bids Scarce and Lower
Cash prices are weakening and boxed beef prices appear to have topped seasonally last week, pretty much on cue, and have already begun to slide $3-$4 since posting last week’s all-time high.
Cash bids yesterday were scarce and a few “tops” traded +2. What few cash bids that did surface were dramatically lower than last week’s market as packers take aggressive advantage of the opportunity to press their margins further into the black. When using the USDA comprehensive boxed beef report, margins last week swung at least $80 in favor of packing plant P&Ls to close to a $15 profit and the 5 year average, according to *MP Agrilytics calculations.
Packers didn’t buy many last week and it’s highly likely this week’s kill will be the largest since before Christmas meaning trade volumes must increase this week. But with live cattle futures trading limit down, the advantage will be with the packers.
Charts Paint Bearish Picture
The technical outlook is blatantly bearish and the August low is in jeopardy. In Feb LC that equates to $148.80, which might sound outrageous considering cash traded last week above $160. If Feb LC equaled the break now that it saw in December, that objective is $149.32.
The explanations for this break haven’t brought much clarity but fear of a monumental wreck in cattle country is widespread. At some point this runaway break will be deemed overdone. But not today.
*MP Agrilytics of Collierville, TN is a proprietary provider of comprehensive livestock and meats data, analytics and research.
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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