News Archive

22 Feb 2012

Daily Market Recap - Basis narrowed to -$5.14 (+$2.30) today, as nearby cattle futures couldn’t keep pace with the blended cutout, which closed at $195.52 (+$2.33).  February cattle futures closed at $129.35 (+$0.45) while April finished the day at $131.15 (+$0.02).  The bulls would point to new intraday highs set by the nearby contract as evidence that this market still has upside potential; the bears would point to the futures’ inability to post significant gains in the face of a blended cutout that has added over +$6.50 in three days.  Although cattle futures were higher in mid-day trading, they seemed to lose some steam once Feeder Cattle futures turned from positive to negative.  The Choice / Select spread widened to $4.25 (+$1.25) as both the Choice and Select cutouts were up strong, to $196.88 (+$2.73) and $192.63 (+$1.48) respectively.  Nearby hog futures closed at $90.32 (+$0.49), while the pork cutout slipped to $84.93 (-$1.14).  This widened the spread with beef to $110.59 (+$3.47), further exacerbating the pressures on retailers to move beef at these high prices and at such a spread to pork.

21 Feb 2012

Daily Market Recap - Basis narrowed to -$7.44 (+$2.14) today, as the blended cutout continued to strengthen, closing at $193.19 (+$2.48), while nearby cattle futures finished at $128.90 (+$0.30).   The board is leading cash markets at this time, as the basis gap is being closed by the rapidly appreciating cutout as opposed to any weakness in the nearby futures contract.  The Choice / Select spread narrowed to $3.00 (-$0.43), with the Choice cutout closing at $194.15 (+$2.34) and Select at $191.15 (+$2.77).  The percentage of cattle grading choice or higher increased to 68% (+1.14%).  Hog futures were generally weak, with the nearby April contract showing the most downside: It closed at $89.82 (-$0.55).  The pork cutout was down to $86.07 (-$0.39), which caused the spread with the blended beef cutout to widen to $107.12 (+$2.87).

21 Feb 2012

Red Meat Report - February cattle futures set a new record for the nearby contract today. In February it closed the week at $128.60, +$4.65 (+3.8%) above last Friday’s close. The USDA blended cutout gamely tried to keep up, managing to add +$3.88 (+2.1%) to finish the week at $188.94. Therefore, the basis weakened, finishing at -$11.35 (-23.1%). At this time of absolute highs facing beef buyers, it is especially important to understand where basis is providing opportunities.

  • The basis gap weakened this week, falling to -$11.35 (-$2.13).
  • The blended cutout strengthened to $188.94 (+$3.88).
  • Nearby cattle futures set new highs, closing at $128.60 (+$4.65).
  • The Choice / Select spread was flat at $4.55 (-$0.22) as both the Choice and Select cutouts were stronger, closing at $190.45 (+$3.80) and $185.90 (+$4.02) respectively.
  • Production was 616,000 head, +14,000 over last week.
  • Cash cattle traded between $128- $129, +$5-$6 over last week.
  • Nearby hog futures added $2.07 to $90.37. The pork cutout added $1.73 to $86.87.

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21 Feb 2012

Daily Market Recap - Nearby cattle futures broke through long-held resistance levels today to set a new high for the nearby contract.  It settled back a bit by the close, but still finished at $128.60 (+1.83).  Cash cattle traded up hard on light to moderate trade, to $128-$129 (+$5-$6).  Production levels were slightly higher than anticipated, at 616,000 head (+14,000).  The blended cutout was flat, finishing at $188.94 (+$0.29), which widened the basis gap to -$11.35 (-$1.54).  The spread finished at $4.55 (-$0.12), as both the Choice and Select cutouts were up marginally to $190.45 (+$0.25) and $185.90 (+$0.37) respectively.  Nearby hog futures closed at $90.38 (+$0.15) while the pork cutout closed at $86.87 (+$0.55).  This brought the spread with beef to $102.07 (-$0.26).  Highlights for the week include:

  • Nearby cattle futures were up steadily all week, adding +$4.65 (+3.8%) to last Friday’s close
  • The blended cutout added +$3.88 (2.1%): Up, but falling behind the pace set by cattle.  This weakened the beef basis to -$11.35 (-$2.13 or -23.1%).
  • The Choice / Select spread was flat, losing -$0.22 on the week (-4.6%)
  • High cash cattle trade (+$5-$6) and strong technical signals are likely to add fuel to the bullish sentiment.
  • Markets are closed on Monday, in observance of President’s Day.
15 Feb 2012

Daily Market Recap - Cattle futures closed just off their daily high, at $126.65 (+$1.13) as prices broke through key technical resistance levels.  The blended cutout was up modestly in comparison, to $186.17 (+$0.69) which weakened the basis to -$11.82 (-$1.04).  Despite cuts to production, the blended cutout has not been able to keep pace with what packers are paying for cattle, keeping their margins in the red.  There continues to be a disconnect between the value of cattle, the blended beef cutout and what retailers are charging for beef.  This disconnect is not sustainable in the long-run as it is a recipe for packers, retailers and all those in between to be struggling with margins.  The Choice / Select spread widened slightly, to $5.36 (+$0.11) as both the Choice and Select cutouts were up, to $187.95 (+$0.73) and $182.59 (+$0.62) respectively.  April hog futures were up, to $89.63 (+$1.65), as the February contract came off the board at $87.10 (+$0.12), a new record for February.  The pork cutout continued its steady climb back to where it was two weeks ago, closing at $85.80 (+$0.41).  This widened the spread with blended beef to $100.37 (+$0.28).

14 Feb 2012

Daily Market Recap - The blended beef basis weakened today, falling to -$10.78 (-$1.56) as gains in the nearby cattle contract outpaced gains in the blended cutout.  February cattle futures closed at $125.52 (+$1.58) while the blended cutout finished the day at $185.48 (+$0.42).  The Choice cutout closed at $187.22 (+$0.57) while Select finished at $181.97 (+$0.09).  This widened the spread to $5.25 (+$0.48).  February hog futures expire tomorrow and was the only hog contract down today; the April contract closed at $87.98 (-$0.32).  The pork cutout closed at $85.39 (+$0.25), bringing the spread with beef back above $100, to $100.09.

13 Feb 2012

Red Meat Report - Nearby cattle futures were flat again this week, continuing a three week trend. The February contract gained +$0.33 to close at $123.63. The blended cutout was supported by last week’s production cuts, adding +$3.66 to $185.06. As you can see from our chart at the right, this narrowed the basis gap to -$9.22.

  • The basis gap narrowed again this week, to -$9.22 (+$1.10), reflecting beef values coming into line with the value of cattle.
  • The narrowing of the basis gap was driven by the appreciation of the blended beef cutout, which was up +$3.66 to $185.06, as opposed to any weakness in cattle futures, which gained +$0.33 to $123.95. 
  • The cautionary note to the higher cutout is it was achieved on the back of three consecutive weeks of production cuts. Many analysts felt the cutout’s response to the production cuts was disappointing.
  • Cattle are beginning to back up due to production cuts. Average weights are 4-5 lbs higher. When this extra supply hits the market, it will put downward pressure on the cutout.

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10 Feb 2012

Daily Market Recap - The beef cutout continued the sideways trend we have observed since Wednesday’s close, after having rallied early in the week on last week’s production cuts.  The blended cutout closed today at $185.06 (+$0.07).  Nearby cattle futures fell to $123.95 (-$1.22), which narrowed the basis gap to -$9.22 (+$2.13).  The Choice cutout closed at $186.65 (+$0.33) while Select gave back most of yesterday’s gain to finish at $181.88 (-$0.44).  This brought the spread to $4.77 (+$0.77).  Nearby hog futures fell, along with most agricultural commodities and the broader stock markets, to $86.65 (-$0.45).  The pork cutout finished the week where it started, at $85.14 (+$0.32), leaving the spread with blended beef at $99.92 (-$0.25).  Reflecting back on the week, the following are highlights:

  • Nearby cattle futures were flat, gaining +$0.33 (0.3%).
  • The blended cutout added $3.66 (2.0%).
  • The blended beef basis narrowed by +$1.10 (10.7%), signifying that the blended cutout is coming more into line with the levels implied by nearby cattle futures.
  • Not much change in the Choice / Select spread, which lost -$0.27 (-5.4%).  Although some cuts are beginning to rally, the tight spread is an indication that the Spring rally hasn’t started in earnest yet.
  • Nearby hog futures lost -$0.68 (-0.8%).  The pork cutout was flat (+$0.04) which, with the increase to the blended beef cutout, widened the beef/pork spread by +$3.62 (+3.8%).
10 Feb 2012

Daily Market Recap - Nearby live cattle futures gave back yesterday’s gains to close at $125.18 (-$0.60).  The Choice cutout was down, to $186.32 (-$0.24) while Select finished up, to $182.32 ($0.84), narrowing the spread to $4.00 (-$1.08).  The blended cutout closed at $184.99 (+$0.12).  The strength in the blended cutout relative to nearby futures narrowed the basis to -$11.35 (+$1.00).  Nearby hog futures closed just under their daily high, at $87.30 (+$1.02).  The pork cutout slid back to where it started the week, closing at $84.82 (-$0.23).  This widened the spread with the blended beef cutout back above the $100 threshold for the first time since early January, closing at $100.17 (+$0.35).

9 Feb 2012

Daily Market Recap - A stronger blended cutout, which outpaced a higher nearby cattle contract, narrowed the blended beef basis to -$12.35 (+$0.72).  The blended cutout closed at $184.87 (+$1.04), due to a higher Select cutout - which finished the day at $181.48 (+$1.37) - and some strength in the Choice cutout, which closed at $186.56 (+$0.88).  The spread narrowed to $5.08 (-$0.49).  The higher cutout is largely a result of the production cuts we have seen over the past three weeks, though there remains a discrepancy between the value of cattle, the blended cutout and what beef is selling for at retail.  Until the value of the blended cutout is more reflective of the value of cattle (evidenced by the basis converging towards zero) and retail beef prices are more reflective of the value of the blended cutout, then we would expect continued choppiness in markets.  As we have written before, this is a market looking for direction.  Hog futures closed a tick above their daily low today, finishing at $86.27 (+$0.10).  The pork was down slightly, to $85.05 (-$0.13) which widened the spread with the blended beef cutout to $99.82 (+$1.17).