Eleven Days, Eleven Dollars Posted on 12/09/2014 by The Beef By Cassie Fish, CassandraFish Spot Dec live cattle have lost $10.90 since topping 11 trading days ago and have retreated to a level not seen since the market broke out to the upside in late September, taking out lots of technical support on the plunge. On today’s low, Dec was the closest to its 100-day moving average of $158.70 since the summer low made in August, when a $13.40 spot correction took about 18 trading days to complete and occurred after cash fed cattle prices and boxed beef values scored all-time highs. BOW_COMMERCIAL_PROTEIN_150x203[2]Futures have staged a turn-around Tuesday rally at this writing, after trading lower early following yesterday’s limit-down move, but it remains to be seen if this is a correction of short term technical indicators or a tradable low. This time on the break, live cattle open interest has dropped to the smallest level since October 2013 standing at an estimated 300,015 contracts as reported by the CME this morning. Some traders have obviously lost interest in this long-in-the-tooth bull and have moved on to other opportunities. Some Bull Market Context The $24.42 rally that occurred from the August low to the November high was the expression of the tightest fed cattle supplies ever seen in modern times. Records were set and all-time highs made in futures and cash cattle prices in November, but not in boxed beef values which some analysts interpret as a sign beef demand is waning in a year when beef demand outperformed all expectations even as average retail prices increased $1 per pound. In the Midst of the Break, One More Record High With smaller production and acceptable demand the rib primal has done its part this season and was still doing it as recent as yesterday, when USDA reported the rib primal at $413.39, the highest in history. Last year the rib topped Dec 9 at $364.90. Just as the last dollar is squeezed out, the well-known story is that the rib is pretty much done by Dec 10 and that negative fact looms large. It has been the rest of the carcass, most notably the loin that has been the drag on the cutout and kept a lid on the composite price this fall. As the rib topples in the coming days, the cutout value will decline between now and Christmas though the end primals typically find some seasonal support to offset the rib’s weakness. The loin has been the cutout’s Achilles heel for months and with beef prices still record high, shoring up this weak link doesn’t look easily done. Packer Gets Crafty; Cattle Got Big The packer has known better than anyone what was coming and has employed every possible strategy known and some new ones too, yet margins exceeded $100 losses. The break in futures and the calendar are allowing packers to buy cattle cheaper, something that typically happens in December. For packers, improving margins before January is paramount. Louder complaining this week about record heavy cattle carcass weights has been heard this week from cattle buyers, even though some packers have actually contributed to the phenomena by buying market-ready cattle in numerous locations and on numerous occasions, and at times, trucking the cattle to another state, only to put the cattle back on feed. This is a great example of how much this industry has changed and how cattle weighing more than 1,500 pounds, considered “big” by industry standards may be slow to clean up because the motivation for controlling and leveraging these cattle is to fill slaughter schedules and pressure the market if possible. Is it possible feedyard currentness is no longer solely in the cattle feeders’ control? Perhaps the numbers of cattle in question not significant enough to be more than a short term market factor, if a factor at all. Time may have that answer. The Beef is published by Consolidated Beef Producers…for more info click here. Disclaimer: The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.
Posted on: Tue, 09 Dec 2014 18:07:40 +0000
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