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CME: Cattle Market Volatility Remains

14 December 2015

US - Extreme volatility reigns in the cattle market, with futures trading in a wide range as market participants struggle to adjust their short and medium term view of the market, write Steve Meyer and Len Steiner.

Front end fed cattle supplies remain heavy and the rate of slaughter so far has been insufficient, in our view, to quickly and adequately address the backlog created over the summer and fall months.

We expect steer and heifer slaughter for the week ending December 12 to be 444,0000 head, 0.9 per cent lower than the same period a year ago.

In the last four weeks (including this week) fed cattle slaughter is estimated 1.9 per cent LOWER than a year ago. So we have significantly more cattle with age on them than a year ago and yet slaughter is near or slightly lower than last year.

Some are hoping that we soon get rid of those 1,600 pounds steers that are still munching on feed but the packer so far has had little incentive to get more aggressive in their bids.

After all it took packers a couple of years to adjust their slaughter schedules to current levels and they will not start bidding up cattle prices unless/until we see a marked improvement in boxed beef and ground beef prices.

So where are we with wholesale beef values? In the next few days the market for middle meats will move lower as holiday demand comes to an end.

Yesterday the rib primal was quoted at $383.86/cwt, about steady with the day before but still about $87/cwt higher than it was in early October.

The loin primal at so far has been a lot lower than some expected and has contributed to the overall value erosion in the cutout. The loin primal was quoted last night at $264.81/cwt, $21/cwt lower than early October. Both ribs and loins usually are lower in late December and they stay weak through February.

There is little out there to tell us that much will change in the trend for loins and ribs this time around. So as we end the year rounds and chucks (end cuts) will come more into focus.

The charts show that normally there is some improvement in the value of rounds and chucks in the last two weeks of the year as retailers empty the meat case of holiday items and fill it with roasts and ground beef.

Will that be the case again this year? Probably. Will that be enough to offset the lost value from lower prices for middle meats? It’s a good question and at this point the answer is, probably not.

Which means packers may continue to play defence and have little incentive to aggressively compete for cattle. Which then also means that the task of cleaning up overfed cattle sizing in feedlots will be difficult; and the process of getting current longer than some expect and hope.

It is interesting to note that while we have seen rounds and chucks run up significantly in January and March of 2014-2015, this was been during years when feedlot supplies were very current and packers had no choice but to try outbid each other in order to fill orders.

If there is one particularly negative signal in the market today is that both the lean (90CL beef) and fat (50CL) beef trim prices reamin very weak. The 78CL meatblock is now at the lowest point for the month of December since 2010.

It will be difficult to lift overall cutout values, and thus what packers are willing to pay for cattle, without fixing the ground beef market. And so far ground beef market continues to struggle. Spring cannot come soon enough.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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