The long traders have left the building; hopefully Black Friday marked the end of the feeder cattle futures selloff with massive down days. It’s kind of hard to figure after we expected the market to pick up a bit after Thanksgiving. ’Tis the season for feeder cattle supplies to decline, estimates are there are 1.2 million fewer feeder cattle available.
On Nov. 22, Black Friday, the January feeder cattle contract dropped $7.80, the following Monday it dropped $6.52 and Tuesday it was back up $8. All first quarter contracts are in the $230 zone, and that’s about where the cash market was a week ago. It’s kind of hard to rationalize a $56 market swing in two months.
Why the futures markets went crazy the day after Thanksgiving is on everyone’s mind; some are saying that the managed money left the feeder cattle markets, and the electronic traders were on autopilot. Some are saying it was covering Livestock Risk Protection contracts that left the market with no buyers and plenty of short sellers.
Where the fed cattle market goes the feeder cattle market goes and we’ve been warning of front-end fed cattle supplies building for the past couple months. And carcass weights are growing larger which isn’t a good sign for orderly fed cattle marketing. Packers don’t seem interested in killing more than around 625,000 head per week—they also want to keep the Choice cutout around that $300 mark. Most fed cattle trade was at $174-175 and $280 dressed; cattle traded early in the week, which they often do in a declining market.
“As futures find their footing, Choice boxed beef values are holding about steady in the $297 area,” said Cassie Fish, market analyst, in The Beef on Wednesday. “Packers will be black this week it appears, since they have saved on cattle costs with cash prices their cheapest since May. But they are faced with the task of gathering more inventory, given they’ve only purchased 14.4k head as of Wednesday morning and the past three weeks have comprised the three smallest trade volumes combined of the year. True, holiday-shortened slaughters are on tap, but this week is estimated to be 635k to 640k head.”
It will be interesting to see where the Choice beef cutout goes from here. The holiday rib market has been slow to develop. Post-Thanksgiving beef features should pick up soon; I would have to imagine the forward purchase of loins and ribs has already occurred. One would think that in the next few weeks we should see much larger slaughter weeks.
Consumer demand is being discussed more often along with the export markets. The word is that consumers are becoming tapped out on credit cards and not saving enough, employment remains strong and mortgage interest is coming down. Recent reports were that consumers were spending big and setting spending records over the Thanksgiving holiday spending spree. Something isn’t matching up and it appears that consumers may be moving to cheaper meat choices.
“Growing concerns over a modest post-New Years recession may be partially responsible,” said Andy Gottschalk of HedgersEdge.com. “Uncertainty is the enemy of all markets, serving as a catalyst to slow consumer spending. There are no shortages in the U.S. and world economies at this time.”
We still have a positive trend for the cattle complex, but we may have seen the trading range for fed cattle established for 2024 at $174-198. Cattle feeders have a better feed cost forecast than they have had for several years. I realize that some of those summer yearlings they bought last summer have $200 breakevens built into them.
Inflation has been backing up, gas is under $3 a gallon, and the average price for all meats is higher. Fed cattle are in plenty supply, for now, but that will change too. Feeders need to market cattle more aggressively to clear front-end supplies so we can get this market moving again; some production costs have come down. Futures markets are oversold and I’m sure the long traders will be back. The long-term fundamentals are strong. But always manage your risk. — PETE CROW
