Despite yesterday’s bullish action in CME cattle futures the bears are still around pointing quickly to the drop in open interest on yesterday’s rally as a sign this rally has short, rather than long legs. Indeed, OI made a new low for the move, dropping 1.8k contracts though it was the final open interest adjustment of options expiration that was really the culprit, taking 9k out of Friday’s OI. Given the huge sell-off coming into options expiration, not a surprise nor perhaps not the as bearish as being spun.
Will OI Recover?
There is concern being voiced by some traders as to what it will take to rebuild OI in LC futures, with the coming demise of the pit and the general spurning of commodities by the big money. Additionally, lots of short hedgers now lay off risk with the packer in the form of forward contracts. Though the concern is warranted, it will take time to determine if the liquidity and some might argue, viability of the CME cattle contract is at risk.
Boxes Finding a Bottom
Boxed beef prices also dropped yesterday, taking out the December low finally, dipping to the lowest level since October. The real take on the boxes though is that a few residual items are cleaning up and the next move is higher. Seasonal lows are close by for the chuck and the round and the rib and loin have held remarkably well recently. Given that the select steer and heifer cutout is only a $1.19 premium to the cutter cow cutout is quite supportive for end primals.
The real player in today’s market continues to be the fed cattle market. Showlists dropped dramatically this week, packers have used up many of their Feb contracts and need inventory. Tops bids yesterday were in the $1.50 over area and packers are faced with the unhappy task of buying a loser. Look for kill cuts and improving boxed beef prices the rest of this month.
Feb LC Back in the Lead
Only Feb LC is hanging on to its gains today. After a limit-up move yesterday, Apr LC has traded both sides today in turnaround Tuesday style. Feeders are losing to fats, but given the lost confidence and potential for cattle feeding losses, that’s not a surprise either. Leaving this market with “the live is the drive” as its mantra, one more time.
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