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The market may have already priced-in a weak consumer demand trend for beef into 2009 but with packer profit margins in the red and producers losing near $200 per head, packers seem to have the incentive to slow slaughter until beef prices move up or cash moves down and producers seem to be quick to move cattle sooner rather than later due to the discount of futures to cash which points to lower cash trade ahead. At some point, the tighter supply should help support but with a weak consumer demand tone and a lack of export, demand remains slow. The cattle market closed sharply lower on the session yesterday giving back a good portion of Monday’s gains as traders see recessionary demand as a key bearish force and economic sensitive commodity markets were hit with fund selling. Ideas that the packer margins are still too weak and that cash cattle will struggle to trade steady this week helped pressure. The discount to the cash market and a firm tone to the beef market failed to provide much support. Cash cattle traded mostly $86.00-$87.00 last week, down $3.00-$4.00 from the previous week and with beef prices down from last week, traders are looking for cash to trade steady at best. Boxed beef cutout values were up $1.08 at the mid-session yesterday and closed 69 cents higher at $144.71. This was down from $151.41 a week ago. The estimated cattle slaughter came in at 123,000 head yesterday, bringing the total for the week so far to 250,000, up from 246,000 last week but down from 259,000 a year ago. Once the market absorbs the short-term per capita supply, supply looks to decline for all meats in the next eight weeks and this could eventually support a recovery bounce.
TODAY’S GUIDANCE: The market seems to have already priced-in a very negative demand base with a big discount of futures to cash but a constant flow of news of corporate lay-offs and weak economic news has kept a lid on supply led rallies.
