COMMENTARY BY TREY FREEMAN
Cash fed cattle markets rebounded significantly this week as packers paid up to fill slaughter schedules for the remainder of the month. Trade occurred at $220 to $225 per hundredweight in the North, up $10 to $15 from the week prior. Trade developed in the South at $226 per hundredweight on the Texas Fed Cattle Exchange on Friday, up $6.
A more confident futures market for live and feeder cattle lent support to the resurgence in cash. A new case of New World Screwworm was detected in a bovine animal located only 120 miles south of the border on Wednesday. This story provided fuel for futures to continue their momentum higher from last week after what appears to be the low after a six-week-long nosedive. Winter weather in major cattle feeding areas also helped. Strong seasonal price action in December is another factor likely giving some traders the courage to step off the sidelines and buy live and feeder cattle futures. April live cattle tend to advance into the end of the year. May feeders do as well, usually showcasing strength from early-mid December into the first week of January.
Choice boxed beef cutout was $5.62 per hundredweight lower on the week at $361.20. Major price support sits right below at $360 per hundredweight, an area not seen since May. A breach of this level opens the door to $345 per hundredweight. Demand for the rib typically provides strong support for boxed beef prices during the holidays, which tend to peak by mid-December. Next week’s performance in the rib will be a critical factor to the cutout over the coming weeks.
The latest USDA report showed slaughter at 600,000 head, up 102,000 head from the week prior and down 14,000 from a year ago. At 600,000 head, the largest weekly kill since March, boxed beef prices are likely to be under further pressure. Estimates for this week’s kill ranged from about 575,000 to 595,000 head.
The tone of cash and futures markets has changed dramatically over the last week. Cash markets are leading the charge, not just in fed cattle but also feeder cattle with the CME Feeder Index jumping over $24 per hundredweight from Friday of last week through Thursday. Generally, the strong case for tightening supplies over the next several months is driving this market now that the political rhetoric has died down somewhat. Demand remains in solid shape. However, the timing of the less-than-friendly seasonal fundamentals surrounding the beef market this time of year bodes less favorably for higher cattle prices. This may take some of the wind out of the sails in cash and futures markets in the coming weeks. As for futures, live and feeder cattle are nearing gaps on the charts leftover from late October. February live cattle, settling at $227.15 per hundredweight, has a gap above from $232.30 to $233.425. March feeder cattle, settling at $333.30 per hundredweight, has a gap from $337.50 to $345.05. These levels will likely be areas of heavy resistance and a major test of whether the low established in late November is simply a correction, or staging for another run into record territory.
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