News Archive

29 Feb 2012

Daily Market Recap - The blended beef basis strengthened to +$0.94 (+$0.79), as the April Live Cattle futures contract closed at $128.27 (-$0.35) while the blended cutout was up, to $197.39 (+$0.28).  Weakness in futures combined with strength in the blended cutout equals stronger basis.  This means that beef, on a cutout basis, is being sold at levels implied by the value of cattle, which is helping packer margins.  The Choice cutout finished the day at $198.65 (+$0.09) while Select closed at $194.68 (+$0.69), bringing the spread to $3.97 (-$0.60).  Hog futures were weak across the board, with nearby April down to $88.02 (-$0.62).  The pork cutout was unchanged at $85.64, leaving the spread with beef at $111.75 (+$0.28).

27 Feb 2012

Daily Market Recap - Basis shifted to positive for the first time in 2012, finishing at $0.15 (+$2.26) as nearby cattle futures were flat at $127.55 (no change) and the blended cutout rose to $197.11 (+$0.98).  Concerns about whether consumer demand can support today’s high cutout levels are beginning to weigh on the cattle complex.  The April contract, which becomes the nearby contract in a couple of days, was down to $128.63 (-$0.88).  The Choice cutout closed at $198.56 (+$1.14) while Select finished at $193.99 (+$0.59) which widened the spread to $4.57 (+$0.55).  Hog futures were down across the board, with nearby April closing at $88.65 (-$1.07).  The pork cutout was sideways, at $85.64 (-$0.13) which widened the spread with beef to $111.47 (+$1.11).

27 Feb 2012

Red Meat Report - The old saying "a picture tells 1000 words" is particularly true when it comes to describing the basis convergence we observed this week. As you can see with the chart on the right, the basis gap between the red (USDA Blended Cut-out) and blue (RRFI Modeled Cutout) lines on our chart has virtually disappeared, for the first time since late 2011. We can also observe that this convergence came about due to a rapid appreciation in the blended cutout.

  • Basis strengthened to -$2.11 (+$9.24), virtually eliminating the weak basis we have observed since the beginning of 2012.
  • The basis gap was closed by the strength of the blended cutout, which was up to $196.13 (+$7.19).
  • Nearby cattle futures lost -$1.05 to $127.55.
  • The USDA released its latest Cattle on Feed Report, with few surprises: Placements 98%, Marketings 102% and total COF 102%. It is expected to be neutral to mildly bullish when the market re-opens Monday.
  • Production was 592,000 head, -18,000 from last week, which will be supportive to the cutout.
  • Not enough cash cattle traded this week to establish a trend.

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24 Feb 2012

Daily Market Recap - The board was relatively quiet today, with most cattle and hog contracts trading in a narrow range.  The blended cutout closed at $196.13 (+$0.50) while nearby cattle futures finished at $127.55 (+$0.25).  This narrowed the blended beef basis to -$2.11 (+$0.76).  The Choice cutout closed at $197.42 (+$0.56) while Select finished at $193.40 (+$0.38), leaving the spread at $4.02 (+$0.18).  Nearby hog futures closed at $89.72 (+$0.12), while the pork cutout finished at $85.77 (+$0.21), leaving the spread with blended beef at $110.36 (+$0.29).  The USDA released its Cattle on Feed report after trading today.  Placements came in at 98%, which was what analysts had expected.  Marketings for January were 102%, slightly higher than analysts’ estimates, but it provides some comfort level around the currentness of feedlot inventories given pre-report concerns of rising carcass weights.  All in all, not many surprises though if anything it might be supportive to the board when the market opens on Monday.  Highlights for the past week include:

  • Basis strengthened by $9.24 (81.4%), virtually eliminating the weak basis we have observed since the beginning of 2012.
  • Basis strengthened because nearby futures were flat, losing -$1.05 (-0.8%) while the blended cutout was up +$7.19 (+3.8%).
  • The Choice / Select spread has not yet begun to widen (an indication of a typical Spring rally); in fact, it contracted by -$0.53 (-11.6%).
  • The beef / pork spread widened by $8.29 (+8.1%) to $110.36.  How wide can it go?
24 Feb 2012

Daily Market Recap - The negative blended beef basis that we have observed since the beginning of 2012 virtually disappeared today, strengthening to -$2.87 (+$2.27), as nearby cattle futures tumbled to $127.30 (-$2.05) while the blended cutout was steady at $195.63 (+$0.11).  The Choice cutout was flat at $196.86 (-$0.02) while Select was up to $193.02 (+40.39).  This narrowed the spread to $3.84 (-$0.41).  Nearby hog futures were down, to $89.60 (-$0.72) while the pork cutout strengthened to $85.56 (+$0.63).  The spread with blended beef is now $110.07 (-$0.52).  The USDA’s Cattle on Feed report is released after markets close tomorrow.  It is expected to show slightly lower placements and slightly higher marketings – unless there are any surprises, it is not expected to have much impact on the board when markets re-open Monday.  What is expected to have a much bigger short-term impact is where cash cattle trade tomorrow.  As has been the recent norm, cash cattle have not yet traded this week.  Bids are $3 lower than last week’s $128-$129 trade, while asks are $2-$3 higher.  Where this standoff gets resolved will  influence where the market opens on Monday.

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).