By Cassie Fish, CassandraFish.com
The summer of 2015 has in some ways been the opposite of last summer when the cattle market outperformed every expectation. This summer, week after week small kills and tight fed cattle supplies are met with a wave of various bearish or limiting market factors, many originating globally—hide backlogs, struggling exports and burgeoning imports. The market has dismissed the importance of tight cattle supplies, focusing instead on whatever negatives come into play. A couple of weeks ago, hope had been renewed only to be dashed again late last week.
Right Here at Home
When Tyson Fresh Meats announced the closing Friday morning of its antiquated Denison, Iowa cattle slaughter-only facility, futures sold off hard. Though that closure had been part of a long-term plan, the timing of it had been unknown and it was viewed as a blow to the cash market, at least psychologically and put cattle feeders back on their heels. Packers backed off on bids. A few cattle eventually traded at $150 in Kansas, which was steady, to $151 in Colorado and western Nebraska, $2 lower. The Corn Belt traded pretty much steady, $236-238. But volume was limited and some cattle feeders carried cattle over into this week, which is being viewed as bearish.
Packers do need inventory for some plants this week coming off of last week’s light buy, and there are tops bids from all 4 major backers in Texas this morning. But market psychologically is leaning the packers way thus far.
Only time will tell if and how the 1200-1500 head a day being killed in Denison will be absorbed by other packers in the area, by Tyson or its competitors. Packers are certainly interested in running more hours if they can do so profitably because improving capacity utilization is a primary way to lower kill costs, a big component in plant P&Ls. A regional packer was thought to run 6 days last week, and last week’s kill did edge up to 540k, up 5k from the prior week, down 40k from a year ago. Within a 200-300 mile radius, plants might be running from 32 hours a week to 38 hours a week. There certainly is a belief that there aren’t enough cattle around to run many more hours and some argue that beef demand has ratcheted back to the point that demand can’t absorb bigger kills at current price levels.
Boxed Beef Top in Sight?
Bears are already beating the drum that boxes will top by Thursday this week, though some years strength continues into the last week in August. Boxes typically correct into September and this year is expected to follow that seasonal. Cash cattle prices typically average slightly lower in September than in August but usually above the July low. If so, this market may be in for a lot more going sideways than anything else.
Futures Down Again
CME cattle futures checked Friday’s lows already this morning and Aug LC is losing big-time to the rest of the field, reflecting the disappointment felt in the cash market, when just 2 weeks ago the market gapped higher, confident the worst days were behind it.
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