By Cassie Fish, http://cassandrafish.com
All eyes are on the developing cash trade this week as CME cattle futures hold near their recent highs today, packers will need to make a move to procure more inventory this week before Sunday and may not be able to wait quite that long. Gains in fed cattle prices the last couple of weeks have been modest and packer margins are getting squeezed but it feels as if the packer may have to try a little harder this week.
Live cattle futures eeked out new highs before drifting a little lower. Futures are starting to become a little overbought, but there is still room to move to the upside if and when the February 4 highs are breached and the market manages to close above them.
Technically, the market would then be poised to check the late December/early January highs and perhaps push into even higher territory. The still, well-out-of-reach early November highs made up near $145 in Apr LC, still stick out as a spring target for the seasonal uptrend.
How high the market can get this spring will depend mostly on two realities and how they intersect. How tight are fed cattle supplies really, and when will numbers start to increase appreciably? The second, when will spring beef demand kick-in in earnest and how will the cutout be able to get? And of course, the timing of the two.
With an early Easter, bets are spring beef features and demand will see a pickup in April. But always with beef demand, reality is powerful and anticipation of same, pretty ineffective.
On the supply side, it depends. Kill levels the next 60 days and carcass weights will be important fundamentals to at least partly inform the transition into larger seasonal supplies. Some argue the lousy feeding conditions in parts of the north have slowed cattle down and out weights will never achieve original projections.
Of course if demand is excellent in April and May and packers accelerated kills and actually â€œpulled cattle aheadâ€, then that would be a potential game changer for the June-August time frame.
Too soon to say at this point. But as the industry waits for cash trade to develop this week, itâ€™s easy to ponder but hard to know, what lays in store.