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The chart looks very bearish and news on the economic front is not much better. Slower than expected demand is still helping to pressure the market. Weak beef prices are translating to weaker than expected cash market and producers keep seeing the premium of futures to the cash market and try to hold out for higher prices later. This has caused some cattle to back-up in the country and steer weights are higher than normal. In addition, drought in Texas and poor milk prices in the Midwest are factors which are keeping non-fed cattle slaughter much higher than expected and adding to the supply issue. April cattle saw an early bounce on Friday with the stock market but the market saw a rollover to the downside and new lows for the week when the stock market pushed sharply lower on the day. On top of the stock market strength, news that packers moved bids up to $82.00 but were passed on by feedlots on Thursday helped support the early bounce. However, cash ended up trading at $82.00, steady against the previous week and down $1.00-$2.00 from expectations. Poor export sales news and sluggish packer demand last week which resulted in a slight set-back in slaughter added to the negative tone and so did news of rising weights. Increased cow slaughter combined with more active non-fed slaughter due to poor pasture and range conditions in the southwest added to the negative tone.
The Commitment-of-Traders reports for the week ending March 3rd showed a strong selling trend from fund traders which is mostly bearish. Managed funds were aggressive sellers of a net 3,535 contracts to reach a net short position of 7,341 contracts. In addition, index funds continue to show a liquidation trend which began in the fall and reduced their net long position to 82,658 contracts. The market looks vulnerable to more fund selling ahead if support levels are violated. The estimated cattle slaughter came in at 111,000 head Friday and 13,000 head for Saturday. Once again, Friday’s slaughter was well below trade expectations which is a bearish factor for packer demand. The slower than expected slaughter pace over the past several weeks has allowed cattle weights to creep higher than normal and this just adds to the beef tonnage issue. Slaughter for the week reached 603,000 head, down from 618,000 last week at this time and down from 647,000 a year ago. Slaughter last week was down 6.8% from last year but beef production was down just 5%. Boxed beef cutout values were down 46 cents at mid-session Friday and closed 41 cents lower at $135.06. This was up from $132.21 a week ago.
TODAY’S GUIDANCE: While the market is bullish on declining feedlot supply, non-fed cattle slaughter is higher than normal due to dry pasture and range conditions in the southwest and higher cow slaughter in the Midwest.
TODAY’S MARKET IDEAS: Look for selling resistance in April cattle at 83.57 with the downside break-out leaving 80.70 and 78.70 as next downside targets.
