By Cassie Fish, CassandraFish.com
CME cattle futures are posting triple digit losses today, making new lows for the month, now less than 200 points off of the July low. Small fat cattle auctions around this week are generally $4-6 lower. A little negotiated trade has occurred in the Corn Belt and there were rumors early of $147 in northwest Iowa, about $3 lower than last week. But as the break in futures advances, more rumors of $232-233 in eastern Nebraska, $5-6 lower dressed than last Friday. There is even an unsubstantiated claim some packers will start discounting carcasses over 1,050 pounds, something not seen in a long time.
Market psychology and bargaining position are a tricky thing. No doubt Tyson’s announcement last Friday has seemed to topple the apple cart and clearly swung power to the packers. Margins are nicely black for packers this week and will grow for next week, even with some boxed beef items beginning to slip lower, mainly fat trim and rounds thus far.
Some of the Corn Belt cattle that have sold this week are rumored to be headed to Kansas to a slaughter facility there where numbers are tighter than up north.
Perhaps looming in the background, even more than the immediate news, is the nagging sense that the eroding negotiated market and the willingness of producers to sell tops, basis or formula has, in of itself, handed the majority of the of bargaining position to the packers this entire year. The proof is pretty plain when examining recent history to find rallies pretty muted and short-lived in spite of historically low supplies producing 4.7% less beef than last year YTD.
How Much More Down?
A panic sell-off like this one is always difficult to figure. On the plus side, open interest is small but the negative side of that is volume is light and trading is quite thin at times. There seems to be little interest to trade this market from the long side for big specs or commercials, at least not yet.
There had been a high degree of confidence the cash summer low was in at $144-145, though the 5-area average was $145.48 for that week. Aug LC has retreated below that level today and while it had been losing to the rest of the contract months all week, has in the last few minutes caught against Oct LC with the spread now back to about even. Technically, the market is about 2/3rds of the way through a correction, but is certainly not oversold.
An October/November rally is still likely, but it looks like it will be a slog to get there given this week’s developments.
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