The Beef Read: Stabilizing

Both cash and futures have found a resting spot for a minute, the Fed Cattle Exchange trade from $130 to $135.75 this morning compared to last week’s $137 5-area average and futures posting a modest rally. Even though cash traded lower, for some prices were better than feared and a welcome sign packers are willing to take on additional inventory.

 

Spot Jun LC has dropped a whopping $14 in less than 2 weeks, and seems to be indicating by today’s action that it’s comfortable with about a $10 basis on average this third week in May. With this week’s cash likely established within the range of today’s internet auction prices, further downside at this time seems unlikely.

For those who are wondering what it would take to alter the downtrend, a close above the China rally high last Friday would do the trick. Right now futures are below their 10-day moving average and way above the 40-day, which technicians expect to be visited sometime in the coming weeks. Yesterday, Jun LC traded down into a gap on the spot chart left by Apr LC on its way up between $120.47 and 120.65, making that as good a spot as any to find some footing and initiate a rally to alleviate some of the shorter-term technical oversold indicators.

The cutout printed lower this morning in what is expected to be a series of lower quotes and the choice/select spread is pushed out to $26.34 with a trip to $30 not out of the question in some folks’ minds. This a reminder that carcass weights and grading are still falling and the seasonal rise of both in June will occur slower than normal most likely. This ought to provide some underlying support and could result in occurrence of a two-tiered market, something not seen in years, with better cattle capturing a premium consistently.

Regional packers have bid some $215 today in the Corn Belt and there were a few cattle that traded that way yesterday. A major packer bid $208 in the same area. In the south, $133 was bid yesterday in Kansas by a major, consistent with where the FCE traded today.