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Traders remain concerned over the longer term demand for beef, the possibility of “extra” pork to absorb into the fall due to liquidation in the pork sector and weak export demand. The market seems to have the supply fundamentals to work higher into the fall, but traders do not trust demand, and speculators were active sellers yesterday despite the recent improving demand and supply news. Beef prices have inched higher in the past few weeks and have reached their highest level since June 1st. Boxed beef cutout values were up 76 cents at mid-session yesterday and closed 62 cents higher at $144.35. This was up from $141.65 a week ago. October cattle collapsed to trade sharply lower on the session yesterday to the lowest level since June 19th, while December cattle set back to near the August lows. Follow-through technical selling from the weak technical action on Tuesday, the premium of futures to cash and the strong dollar were used as reasons for the selling. The market is now down as much as 215 points off of Tuesday’s highs despite stronger beef prices and expectations for higher trade in the cash market this week. The showlist for cattle is down this week, which should help support the cash cattle market. Higher beef prices and a tighter supply should push cash cattle to near $84.00-$85.00 this week from $83.50 tops last week. Fund and speculative selling, thought to be long liquidation, appeared to be the primary reason for the weakness yesterday, and there was a lack of new buying interest on the move under 88.35. The estimated cattle slaughter came in at 126,000 head, which was below trade expectations and suggests that packer demand is not as strong as traders have believed. This brings the total for the week so far to 380,000 head, up from 378,000 last week at this time but down from 382,000 a year ago.
TODAY’S GUIDANCE: With packer margins improving and the cash market trend up, it was surprising to see such an aggressive sell-off in futures along with a jump in open interest to the highest level since October. It almost seems like large traders are making a big commitment to a short position and that this is NOT a long liquidation sell-off.
TODAY’S MARKET IDEAS: Trade sentiment seems too negative given the short-term positive cash fundamentals. Watch for signs of a near-term low in the December contract, but wait for more positive action before entering the market from the long side. December cattle has failed to hold support, and a move under the August lows counts down to 86.62 with resistance at 87.87. Stand aside for now, but watch for lows near 86.62 in the December contract.
