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The upside break-out on Friday leaves 87.17 as the next technical target for August cattle but the market may need better confirmation of improved demand before seeing the premium of futures to the cash market expand further. Funds have been active buyers recently and the technical action is positive but beef prices have moved little off of the lows. In fact, beef prices are at the lowest level since April 3rd but the trade remains optimistic that tighter supply will support beef prices soon. Traders remain optimistic that the longer-term trend will be up as well and that the Cattle-on-Feed report from the USDA on Friday will support. Traders expect the report to show on-feed supply near a 10 year low and that placements for the month of June may have been the lowest in 13 years. August cattle inched higher with quiet and two-sided trade early in the session on Friday and then closed strong with a burst of fund buying. The lack of leadership from the cash market last week and the premium of futures to the cash market (last week at $82.00) helped to limit the buying support. Cash cattle traded at $84.00 on Friday, up $2.00 from the previous week but still 250 points below the August futures. Boxed beef cutout values were down 17 cents at mid-session Friday and closed 10 cents lower at $136.54. This was down from $137.36 a week ago. The Commitment-of-traders reports on Friday showed a surge in buying from trend-following fund traders for the week ending July 14th increasing their net long position by a whopping 13,784 contracts to a net long of 20,521 contracts. Index funds were also light buyers. Non-reportable traders increased their net short position by 2,017 contracts to 22,809 contracts. The buying trend of fund traders is a short-term positive force and helps explain the run-up over the past few weeks. The estimated cattle slaughter came in at just 117,000 head on Friday and 16,000 head for Saturday. Both of these numbers were well below expectations and could be a sign of weakening demand from packers. For the week slaughter was 627,000 head, down from 628,000 last week at this time and down from 687,000 a year ago. Cumulative US beef export sales for the year have reached 285,500 tonnes, down 12.8% from last year even though we did not have any sales to South Korea last year. Milder weather with scattered rains this week in the southern plains could ease performance concerns and might be considered a negative today.
TODAY’S GUIDANCE: The slowdown in slaughter and weak beef prices leaves the market vulnerable to a set-back once the fund buying slows. The stiff premium of futures to the cash market could limit a further advance for now. August cattle resistance is at 87.17 with 84.77 and 84.35 as key support. Close-in support is near 85.62.
