Live Cattle Path of Least Resistance is Downward By Dennis Smith
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Tuesday May 15, 2018
Cash is called higher again today after the cash was quoted up .75 to $1.00 on Monday. The cutout was stable on the heels of an impressive gain in the carcass value last week, gaining over $4.00. Futures closed higher yesterday on volume reported by the exchange of 42,000 with open interest down 975. Open interest continues to come out of the June contract in chunks, declining by 2,400 cars yesterday. Futures remain premium to cash but that’s a normal basis for this time of year and not a reason to be bearish. Exactly where we stand on the NAFTA issue is a reason to be concerned about the long term health of the industry. Passing NAFTA is critical to U.S. pork producers. The major sticking points in the trade agreement have nothing to do with pork and everything to do with the auto industry. Early today the U.S. dollar is powerful strong while the Canadian dollar and Mexico Peso are weak. If that’s a signal regarding the NAFTA talks I’m not sure how to interpret such signal. So we’ll let the market do the talking. We need to see a close in June hogs above the April highs to signal a meaningful seasonal rally.
Any questions regarding the direction of cattle cash prices and futures, going into the summer, were resolved yesterday. Prices are headed lower and most likely sharply lower. June LC settled limit down on Monday triggering expanded limits for today. Look for Aug to be the whipping post and lose to both the June and the fall contacts for the rest of the week. Exactly where the cash steer market becomes established this week is still a guess, but lower is a near certainty. Trade in IA occurred yesterday about 1800 head from $116.5 to $1.23. While the beef is still edging higher it appears a seasonal top is close at hand. Friday’s late recovery after trading lower all session allowed us to get bearish orders filled. We were prepared to add to positions yesterday on a steady to higher performance but never got the chance. The path of least resistance is downward.
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