Futures markets are pricing in the Brazil’s tainted meat probe announced last week. This news provides just another catalyst in an already bullish beef market. The USDA boxed beef cutout market reached its highest level yesterday since June 15. Further, front end supply remains relatively tight. The DailyLivestockReport.com today leading into Friday’s COF report estimated based on one projection…
“Using the average of analyst estimates…..as well as inventories and placements from previous months we calculate that on March 1 the supply of +120 day cattle on feed was 3.248 million head, 16.3% less than the same period a year ago. In March 2012 this supply was well over 4 mil head and in March 2013 it was +3.7 million head. Tight front end supplies and robust cutout values remain supportive of cattle prices.”
Packers are in the green, so strong production should continue to keep supplies tight and fed cattle cash prices firm. Recent cash prices range from 128-130 which is keeping the basis historically wide. Recent basis was over $17.00 vs the 5 year average of around $8-9. We’ll get a cash update from the Fed Cattle Exchange later today. Also, Cold Storage report is at 2 pm and the estimate is 521.7 million pounds of frozen beef. This report could potentially produce more of a market reaction than most as we move into seasonally lower prices this Summer.
Cattle on Feed is this Friday, and estimates are expecting lower YOY placements, higher YOY marketings, and close to unchanged cattle on feed. Some analysts think the placements number will be lower as a “pause” from the 700k YOY increase from Nov – Jan. However, high imports from Mexico and drought conditions in the plains might increase the YOY placements beyond expectations.
Fundamentally, the livestock production chain seems to be healthy and balanced, however, the larger issue is how higher prices will affect the consumer’s appetite. As noted, seasonals are bearish past Spring in the meat market but this is largely priced into June and beyond. Our weather in the next few weeks still supports beef demand.
Technically, RJO Market Insight identifies 106.725 and 103.15 in June futures as key S-T Risk and Risk points respectively to maintain a bullish stance. Dave’s idea last week to buy under 108.00 in June futures was narrowly missed.
As mentioned in several of my recent posts, the back months look cheap. The daily June chart (below) shows a strong value area 104-109 area and a projection higher if strength holds to the 116-120 area. Both of these areas are consistent with long-term technical areas visible on a monthly chart. The 104-105 area is a monthly washout area identified last blog and the 116-120 area was identified as the largest accumulation area over the past 6 years on a continuation chart.
Live Cattle June 2017 Daily
Live Cattle – June 2017 Daily Chart
Live Cattle Monthly Continuation