The Beef Read: An Earned Advance

Every single cattle contract is either at new contract highs or near the them. Futures continue to behave in a methodical, grinding-higher fashion responding only to the stellar fundamentals this market has put together this year. Technical indicators are pushing into overbought territory, but the foundation of the move -the fundamentals- remain solid.

A quick review of the 2017 cattle market explains how we got where we are today. Today’s success story is rooted in currentness. The industry has slaughtered 517k more cattle YTD than in 2016, a testament to better beef demand. For every week that carcass weights and the number of yield grade 4s and 5s plummet, prices become more sustainable. The greatest decline in weights occurs in April so the torque of that impact has not been fully expressed. Anecdotally, northern cattle feeders are selling calves the earliest in history.

This Week
This week’s showlists indicates southern numbers are growing while the north remains tight- exactly as expected. Expectations for this week’s cash are steady south and higher north. The kill will be 590-599k and the cutout is expected to be higher.

With open interest in live cattle futures at a record high, the record number of shorts are feeling collective pain. In today’s modern futures market, shorts never seem to blow like in the old days. Still the pressure is substantial.

Implications
The more current the industry heading into May and June, the two best beef demand months of the year, the better. It’s important to remember that thus far in 2017, retailers have heavily favored beef and that is expected to continue.

The lighter the carcasses, the greater the need to kill more head to fill orders. These are the two main positive factors that will limit the downside of the cash fed cattle market in the coming weeks- regardless of the seasonal. The longer fed cattle prices sustain above $120, the more disjointed the discount futures market looks.

Certainly 2017 will see a “spring high to summer low” break. The question is from where to where. It has been so long since the cattle feeding industry was this current, perhaps the power of it has been forgotten.

Source: The Beef Read