Cattle Market Drop Concerns Traders
At the time of this writing we only have $127 on the books for today's cash cattle trade. Yesterday's ran from $124 to $128.
Last week's average was $136, with the week's peak at $137.50. This sharply lower cash cattle trade is obviously a bit worse than anyone expected starting out the week. It is also quite a surprise considering the relatively minor hit to cash cattle this week. Boxed beef, through the Friday morning USDA report, is only down 1.34 for choice and 0.62 for select.
The sharply lower cattle trade was made from an usually large interest from cattle feeders. With futures implying lower prices for the next several weeks, cattle feeders are moving anything close to market ready. As noted in the AM comments, we have reports of feedlots not even getting calls back from their packer buyers yesterday and this morning. Expect another week of heavy offered supply next week as well.
USDA's Friday afternoon production report pegged the week's run at 628,000. That was next to our 632,000 head estimate from the morning and therefore not a market mover. It is the second biggest kill of the year and the largest in seven weeks. Compared with last year it was 3.7% higher. Yesterday's weekly summer of the kill week from two weeks prior showed the average carcass is now only 1.8% lower than last year. It was just a few weeks ago it was 3% lower.
On the charts the dominant contract, August, has not yet broken the May 16 price of 116.77. When/if it does, the double top formation would imply 106.00. Also on the charts, we have a small open gap up from 120.42 - 120.60. That may be a good short term target for bulls to push for next week if they can. We certainly can see a small move higher in the shorter term. Packers will be sitting with a large margin after this week's cash beef and cash trading. As a reminder, based on Allendale's supply and demand estimates we see the August fat contract at $114-$117.
We remain bearish and will hold the $120 to $123 hedges advised in the first seven days after the main market peak on May 4. RN
This material has been prepared by a sales or trading employee or agent of Allendale Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Allendale’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Allendale Inc. believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.