From CassandraFish.comBy Cassie Fish,
Despite some positive technical signs, enthusiasm seems to be running low for much of a rally in CME cattle futures. Feb and Apr LC have both taken out Monday’s high and have even poked their heads above the 10-day moving average. But it’s where we finish today rather than where we start that will give market watchers some additional clarity.Most active April LC is still shy of a .318% retracement back to $152.80. But on thepositive front, the bull spreads are working as Feb LC seems to have remembered first notice day is coming up on February 9 and perhaps cash prices won’t trade sub-$150 during February after all. Still, last week’s high of $154.95 looms overhead as significant resistance, psychologically and technically.
Boxes, How Much Lower?
It’s somewhat amusing the bears want to talk about the declining boxed beef prices as bearish when the market dramatically ignored all-time highs being made in boxed beef prices just a couple of weeks ago.So where are boxes headed? Yesterday choice boxes were quoted at $247.70 off about 7% from the high and it’s widely expected to lose another $3-4 this week. Support can be found where the USDA choice heavy cutout bottomed in December at $238.57 just above the big low made in September of $237.66. Prior to that you have to look way back to early June when the cutout was trading in the low $230s. We won’t know until Monday if the comprehensive cutout is going to narrow its $4/cwt gap to the spot cutout, or lag behind padding packers pockets.
Packers Play It Cool
Packers are expected to rely very heavily on February contracts for next week’s slaughter, enticed by a bonanza basis and the ability to leverage captive supplies against the negotiated buy for this week, which so far, hasn’t yielded much trade. As futures recover, packers are playing it cool and cash trade may not occur this week until Friday afternoon. Last week’s cash average was $159.44 so the basis has narrowed into less than $6 after stretching over $10 on Monday.
Cash Trade This Week Could Get Interesting
Cash is expected to trade lower this week, perhaps seeking the levels traded in September and December, $156.74 and $158.51 respectively. The monumental difference this time, compared to September and December are packer margins. Market ready supplies of fed cattle are arguably more current today than during those earlier time frames as well. Which is why slaughter levels over the next 5 weeks are extremely critical in setting the tone of this market as we round the turn into spring. If cash were to end up trading steady this week, let alone higher, that would be an interesting development.
Beef Export Discussion on Tap for Tomorrow
If you’ve got some time tomorrow afternoon and want to be up to speed on the beef exports outlook for 2015, sign up to listen to USMEF economist Erin Borrer. Click here for more information.