Cash fed cattle finally broke past $130/cwt. and beef prices continue to strengthen, but the market remains unconvinced that this is the bottom rung of a new seasonal plateau.
“Trade chatter suggests that after topping the $130 barrier for cash fed cattle, traders will be assessing whether wholesale beef cutouts can advance enough to support a further advance,” says John Otte, Penton market analyst. “Market chatter suggests Thursday's cash trade at $130 is probably the most packers will pay for quite a while… Everybody in the industry was waiting for the price to hit $130. Once it did, everybody started to liquidate long positions. Packers will come in and say that cattle are too high compared to beef, so we're probably in for a two-to-three-week correction in the cash and the futures.”
Otte says it was the lack of supply this week that forced packers to cough up as much as $5/cwt. more for fed cattle compared to last week.
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“The bullish argument for the market in the short term runs something like this:” say Steve Meyer and Len Steiner in Thursday’s Daily Livestock Report. “Supplies in feedlots are particularly tight, with September inventories down 7.2% from the previous year. Low feed costs and the removal of Zilmax from the market also will tend to slow down carcass weight gains and limit the supply of beef available in the market at the end of the year…”
Conversely, for those with a more bearish outlook, Meyer and Steiner explain, “Despite news of economic improvement, beef remains a luxury for a large number of consumers. Also, it is unclear for them (the bears) how the supply picture will unfold. While feedlot inventories were tight as of Sept. 1, placements in the summer months were skewed towards heavy placements, which implies that the marketing window will be front-loaded.”
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