The Beef Read: Breakout, fall back

Oct LC finally broke out to the upside from its six-week long consolidation between $104 and $110 yesterday. On the limit-up move, open interest dropped big in the Oct LC, down 6.4k as shorts rolled positions to the deferred futures months offering a big carry. Overall OI was up an impressive 4k, as speculative longs added to winners and short hedgers took advantage of life-of-contract highs in Apr and Jun LC.

It is remarkable and rather unexplainable that Dec continues to gain on Oct as that spread widened to new levels this morning. Perhaps it will take proof that cash cattle and boxed beef prices will advance in October to tighten that spread. Dec LC, on its high today, was a mere $2 shy of where Dec LC 2016 ended. Oct has risen almost 400 points since last Friday’s close and today reached the settlement of August 7, the day the collapse began. Only Oct and Dec have failed to fill the gaps left after the bearish July Cattle-on-Feed report.

CME feeder cattle and all but Oct and Dec live cattle futures are technically overbought now, so today’s lower trade is not unexpected.

Cash Cattle Yet to Trade
Packer inquiry has picked up significantly this morning as buyers’ maneuver for position and prepare for this week’s negotiated trade. The only question here is how much higher will cash trade once the games begin, though $108 seems likely compared to mostly $106 last week.

Bottom in the Boxes
Boxed beef values will begin to improve as well next week, now that confidence is rising that a Q3 low for the year is in place. October is generally a better month for beef than September as orders for holiday rib and tenderloins begin to creep into the mix. There will be a couple of plants per week the next couple of weeks that will do pull a shift to perform maintenance. This will tighten up boxed beef offerings just a bit and asking prices for items will be creeping up as the sold position improves. Kills are expected to be +630k over the coming weeks.

Source: The Beef Read