Fed futures pass resistance levels

Sep 14, 2012
by WLJ

Surprisingly high cash fed cattle trade developed Wednesday last week. Cattle were selling $196-197 dressed and $126-127 live in the Corn Belt and in some portions of the South Plains. Colorado didn’t sell any cattle that day and Nebraska and Iowa sold lightly at $124-126 live and $194-195 dressed. Analyst opinions suggested these slacking states would have to trade a few dollars higher on any late Thursday or Friday clean-up sales to keep up with the rest of the market.

Near-term futures rallied last week, with October fed cattle futures breaching its resistance point on Wednesday. Over the course of the week, October futures gained $1.31 compared to its prior week close, coming to $127.78 by midday Thursday. Andrew Gottschalk of Hedgers Edge said the next resistance point for October is $130.25. December contracts gained in kind, up $1.28 to stand at $130.45.

Product values were mixed last week as the Choice cutout slowly crept higher throughout the week while Select lost close to a couple dollars early in the week and seemed content to stay there. On the close of the prior week, Choice stood at $190.73 and Select at $181.70, a spread of $9.03. By midday Thursday, Choice had eked out an overall gain of 82 cents at $191.55. Select, on the other hand, had lost $1.72 to stand at $179.98, a spread of $11.57.

Troy Vetterkind of Vetterkind Cattle Brokerage also commented on the nature of altered resistance levels given last week’s futures behavior.

“Technically, the October live cattle contract still has room to trade up to $130 and December up to $132.50 and these are the price levels I would look for the market to trade up to before running into major resistance. If the funds want to own more cattle futures, we could easily trade a couple dollars higher than the aforementioned, but at $130 in Oct

The run-up in cash fed prices is expected to drive up product values, possibly to the detriment of all involved. Says Gottschalk:

“The only certainty from [Wednesday’s] action is that retailers will be forced to raise retail beef prices which will further limit consumer interest. The beneficiary of yesterday’s price advance may prove to be the pork complex where retail margins are near being maximized.”

Though this might well be the future, last week, retail demand and cut-specific value was mixed but mostly steady. Seasonal domestic interest for chucks, rounds, and other traditional roast cuts is said to be picking up and adding to usual export interest for such cuts, seeing them trade higher last week. Loins and some rib-area cuts saw some discounting, but not much. The biggest hit went to ground formulations and thin meats or other grinding cuts as seasonal demand for ground is diminishing as summer heat is fading in most places.

Supplies of boneless beef for grinding and trim are outpacing demand for ground beef and driving trim values down. The pickup in cow slaughter and expectations of more to come is also adding to that downward movement. Ninety percent trim lost $4.29 ($210.89) by midday Thursday compared to its previous week close.

Fifty percent trim also lost value, but not to the extent of the 90s, down $2.89 over the week to stand at $56.75.

Most recent export data shows beef trade at 16,800 metric tons, down 8 percent from the prior week and 3 percent down from the fourweek average. Increases were reported for Mexico, Japan, Vietnam, South Korea and Russia. See pages 4 and 8 of this week’s WLJ for other stories on the topic of international beef trade and U.S. exports.

Last week expected a 640,000-head processing week. Day-to-day slaughter rates were below week and year comparisons and analysts predicted packers would be challenged to meet that level. With packer margins well into the red all of last week—losing anywhere from $7.65 to $24.65 a head—as well as the increased live purchase and product values, rumors of packers cutting kill rates persist.

Outside markets the first half of last week were occupied with anticipation of USDA’s most recent corn estimates (see the report on the cover of today’s WLJ). Despite expectations of diminished harvested acres and yield estimates, corn was sluggish in the early half of the week. Following the release of the Supply/ Demand report which did not cut corn production nearly to the extent predicted, corn moved even lower. Over the course of the week, corn lost 20 cents/bu in its September contract ($7.75’2/bu) by midday Thursday com pared to its previous week close, and the December corn contract lost 27/bu cents ($7.72’2/bu).

The Dow gained decently throughout last week, buoyed by the hope of (then eventual confirmation of) a third round of quantitative easing by the Federal Reserve. Over the course of the week, the Dow gained over 235 points—at 13,541.99 midday Thursday—with a steep upward climb right after the announcement of additional “intervention” by the Fed.

Feeder cattle

Cash feeder cattle traded mostly up last week compared to the prior week. Weight and geography played a role as always, but very few instances of lower or sharply lower trade were noted.

At the Winter Livestock Feeder Cattle Auction in Dodge City, KS, mid-weight feeder steers traded firm to $2 higher and heifers were up $2-4. Demand was called active and very good for yearlings. Thirty-six head of 782-pound steers sold for $145.60.

The El Reno Livestock Market of Oklahoma saw steers go for steady to up $3 and heifers were steady. Calves only saw a limited test too light for market trend determination. A 750-pound steer sold in the range of $140.50-150.

In New Mexico’s Clovis Livestock Auction, trends were reversed. Steers were mostly $5-7 lower and heifers were steady to $3 lower. Slaughter cows and bulls traded steady to up $1. A 750-pound steer sold in the range of $130-137.75.

Feeders and slaughter cattle of all sorts traded generally up in Missouri’s numerous auctions. Recent rains have greened up pastures in the area, but it is uncertain how much damage has been done and how much of it might be reversed in the current season.

Medium and light steers sold up $1-10, with a few instances of up $15. Heavy steers were steady. Feeder heifers were more mixed with preference for mid weight animals at up $2-10, while light heifers were down as much as $4 and heavies were steady. Calf prices varied a lot based on weight with preference for lightweight calves at up $2- 5. Slaughter cows and bulls were up as well, with cows fetching $1-5 more than the prior week and bulls being up $2-4. Seven hundred fifty-pound steers sold anywhere from $138.5-147.25.

Much like fed cattle futures, near term feeder futures gained throughout the week last week. September feeders gained 98 cents over their previous week close to settle at $145.28 at midday Thursday, and October feeder cattle gained $1.43 at $147.58. Vetterkind opined feeder futures lack the same dynamic of the fed futures due to an already existing premium over the CME index—last quoted at $142.73—but that they may still go higher.

“I think we will see the index move higher in the coming weeks and this along with stronger fed cattle sales should be able to push the October feeder contract up to $150, but as of right now, I don’t see a lot of topside above that.” — WLJ