CME Cattle futures joined practically all other commodities, ag or otherwise, this morning and sold off, beginning to correct the overbought condition last week’s enormous rally created. Interestingly enough, Oct LC has put the brakes on within a stone’s throw of its contract high, begging the question, is the market making a double top?

The Question Behind the Question

Isn’t the real question though, whether the cash fed cattle market is ready to establish itself above $160? Sure the market traded above $160 a couple of times in July, even as kills shrank, and last week prices averaged around $163. Bears say it’s a check of the highs. Bulls say there are not enough cattle around to satisfy packer needs easily, week in week out, in spite of them having access to a few more contracts and formulas in September and October.

If boxed beef movement the last 3 weeks hadn’t been so spectacular, above the last 2 years and the 5 year average, and packer margins near or exceeding triple digits, then maybe packers wouldn’t have started adding to kills back in August. That’s right, week ended August 23 the estimated kill was revised up to 596,000 head from the estimated 590,000 head, a 13,000 head increase in fed cattle slaughter from the second week in August. The 596,000 head kill by the way, was the largest since the 4 +600,000 head, back-to-back weekly kills we had in June.

This week the kill is estimated to be 590,000 head but it will just as likely be closer to 600,000 head. And one thing the market is trying to tell us is kills near or above 600,000 head stimulates demand for market-ready fed cattle. In order for packers to own enough inventory to cover kills this size, they are required to compete, aggressively for available supplies, beating the bushes in fringe cattle feeding states to top off plant needs.

Boxes Bottom

USDA choice boxed beef prices rebounded $2.37 by last Friday from the prior week, after breaking $17.55 off its high reached the last day of July. Talk was widespread that the big rally in futures sent a tremor of “inspiration” through end users, who stepped in to extend purchases. As is true for all participants in this current bull market, the knowledge that ample supplies of beef won’t be available for years, not months to come. And the November through February time frame could see the greatest beef shortages yet.

Thank you to The Beef for this article