CME Expands Limits; Cattle Futures Bottom Posted on 12/18/2014 by The Beef By Cassie Fish, CassandraFish As was bound to happen once the CME Group finally adequately expanded the limits to facilitate liquidation in feeder cattle futures, both feeder and live cattle futures have decisively rallied this morning, leaving impressive tails in several contract months. BOW_COMMERCIAL_PROTEIN_150x203_v2The real gutting took place in just 4 days in Jan feeders. As of last Friday, the feeders had retraced to the bottom of the $14 trading range it had found itself in since late September. But Monday’s gap lower left an ominous top, trapped longs and technical carnage followed quickly by the painful realization that daily trading limits had not been adjusted to accommodate a market that had increased exponentially over the last several months. This morning most active Jan feeders bottomed at $212.10, just 0.20 short of a mirror break of the 2-month trading range in just 4 short days, a $27.20 break in Jan and $33 in spot. Since bottoming the first 5 minutes of trading this morning Jan has rallied $6.37 points this morning off the low and anywhere from $9 to $11 from levels traded synthetically yesterday in feeder cattle options. Since we’re keeping score, spot LC has declined almost $16 from its high and most active Feb LC $17.62, 700 points just this week. On a spot basis, this correction rivals the Feb 2014 high to the May 2014 low correction only in price, certainly not in time, the former covering almost 3 months and the later under 2 months though arguably most of it in under 4 weeks. Cattle futures are trading in a volatile fashion this morning, with the operative word being trading. With the expansion of the limit, order has been restored but not confidence as reflected by dramatic intra-day swings. Besides being road weary, traders have the holidays, end of the year, and 2 USDA livestock reports as additional reasons to limit participation or stand aside all together, which won’t help the market find it’s bearings short term. Cash Cattle and Boxed Values Capitulate The cash fed cattle market traded sharply lower this week in the midst of the melt down, mostly in the $156-157 area compared to last week’s 5-area average of $162.28 and almost $15 off of the all-time high paid in November. Cash fed cattle prices have followed the futures market back to levels seen in September. The USDA choice cutout is in hot pursuit also, losing $7.54 from a week ago, quoted at $242.41 while select if down $5.24 at $231.13, taking the select fed cutout discount to the cutter cow cutout for the first time, also since September. The choice cutout bottomed in late September at $237.66 and this level is expected to hold. Packer margins have already improved enormously. Holiday productions cuts and a recovering futures complex will translate to improved interest from beef buyers. A bottom is in sight. What we are seeing today is the tail end of exhaustion selling. It’s been a huge break accompanied by an exodus taking open interest to the lowest level since August 2013. The bigger question is whether the major top is in, but that’s a discussion for another day. The Beef is published by Consolidated Beef Producers…for more info click here. Disclaimer: The Beef, CBP nor Cassie Fish shall not be liable for decisions or actions taken based on the data/information/opinions.
Posted on: Thu, 18 Dec 2014 18:43:27 +0000
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