After a big wash-out prior to 1:00 p.m. yesterday in CME cattle futures, the market began creeping up in the afternoon, portending the +100 point higher opening today. Leaving a big tail on the charts and turning up technical indicators, a short-term low appears to be in with the possibility of a more significant low in the making. A close tomorrow above Tuesday’s high would certainly go a long way to cement the low and build some confidence that the recent careening slide is over.
Big Futures Trade
There was big volume and a big open interest build on yesterday’s flush, up over 6k contracts but it’s unclear who the players were. Was there desperate hedging by cattle feeders and their bankers, long hedging by packers or adding to shorts by managed funds? All of the above? The weekly CFTC commitment of traders report for yesterday’s action won’t be revealed until a week from tomorrow leaving room for nothing but speculation until then.
Activity in the country has been extremely quiet compared to the financial markets with a very few fringe Corn Belt cattle trading lower than a week ago at $226-228. After last week’s large negotiated trade volume, packers are not expected to be aggressive. Still, packer margins are excellent and fed cattle costs in the mid-$140s are attractive as they are well below where the market has averaged for the last 20 months.
One of the keys to how long the packer can keep a lid on fed cattle prices this fall is when the north, specifically central and eastern Nebraska and Iowa, get through their peak numbers and regain front-end currentness. Perhaps if packers keep putting south-bound wheels under cattle and up slaughter schedules somewhat in the south that northern cleanup will occur quickly. As those in this business know, cattle weights don’t top seasonally until Nov 1. There have been reports of more packers discounting big cattle this week. So getting ahead of marketings this time of year can propose a challenge. And packers have exhibited a discipline on keeping kills reined in since May.
Soon-to-be-lead month Oct LC is almost $5 discount to last week’s cash trade even after rallying $3 off of yesterday’s low, which saw the market remarkably trade under $140, a level not reached in the most active futures month since May 2014 or in cash fed cattle prices since early January 2014. It would certainly seem that futures will lag behind the cash market for the foreseeable, until or unless an unexpected significant development alters the perceived landscape.
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