CME cattle futures finally shake off their malaise as spot Feb LC begins first notice day gapping higher to the highest level in 4 weeks. With options expiration over, which took open interest back to the recent lows, Feb LC has a new lease on life. Though losing to Apr, Jun LC and Feeders today, the Feb, inspired by strong fed cattle prices, has cleared the path of least resistance for all to follow higher.
Cash Prices Strong; Supplies Tight
As cattle that were sold Friday are loaded on trucks today, the hunt for market ready cattle and challenge for packers of filling kills continues. Cash prices last week were higher with a top of $162.50 and this week is expected to be higher as well.
Last week’s kill clocked in at 544k, below expectations as last week’s weather disruptions were not made up. Estimates for this week are in the 540k-550k range though last year’s kill for this week was 540,290 head. In light of reduced production, packers have raised asking prices and the cutout is expected to gain in value this week, though modestly, since a big rally is counter the seasonal trend.
Where’s the Market Headed
With a futures market bottom established and the technical indicators pointing higher it’s up to cash prices to provide real world guidance. It would seem that slow seasonal beef demand, large competing meat supplies and limiting export issues were priced in last Monday when Feb bottomed $13 under where cash traded last week.Extremely tight fed supplies have swung to the forefront yet again and how much money can cash fed cattle prices gain in light of packer margins which are back in the red is the key question.
Without plummeting futures prices to aid their cause, a packer’s job just got a lot harder. Despite the “loss of currentness” lament for months by some, its excruciatingly obvious weights are dropping and numbers are tight. Certainly too tight to easily kill more cattle than a year ago. Looking back the 576k kill 3 weeks ago, followed by the 563k both may have been overkill relative to available supply.
Given all these dynamics, cash cattle prices could well trade back to the $163 to $166 area the rest of February, paving the way for more upside in futures, which are still maintaining a substantial distance.
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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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