While cattle and beef traders wait for this week’s negotiated fed cattle trade to begin, conversation is mostly focused on whether a top is in, imminent- or no.
There’s plenty of discussion about this week’s big northern fat cattle auction runs ahead of extreme heat on way in the north and that this supply influx has taken the edge off some northern plant needs.
There’s also plenty of talk that, despite huge packer profit margins that this week’s Saturday will be subdued and this week’s kill might only reach 610k-620k, rather than +620 earlier expected. If the kill does come in 10-20k shorter, it is in response to the limited supply of market-ready cattle. If that’s the case, it’s not a stretch to assume that would only soften the decline of boxed beef values.
The volatile nature of CME cattle futures this week has added to the confidence that the market is topping, whether cash cattle prices are sharply higher this week or not. Certainly, futures are overbought and Tuesday’s technical reversal has not been invalidated. The overriding seasonal continues to support the logic that an eventual increase in supplies coupled with the seasonally softer beef demand post-July 4th insure market weakness portended by futures.
But key dynamics in place the past 7 months remain intact. Profitable cattle feeders will chase basis, and attempt to sell cattle early to stay in front of the presumed supply increase in late summer and early fall. Profitable packers still plan on increasing production in Q3 relative to Q2 and margins will likely average over $100. These factors ought to support the maintenance of front-end currentness- if demand allows it.
Source: The Beef Read